S-1/A 1 d804478ds1a.htm AMENDMENT NO.2 TO S-1 Amendment No.2 to S-1
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As filed with the Securities and Exchange Commission on September 13, 2019.

Registration No. 333-233259

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

The We Company

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7380   61-1936163
(State or other jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer Identification Number)

 

 

115 West 18th Street

New York, New York 10011

Telephone: (646) 491-9060

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Jennifer Berrent

Co-President and Chief Legal Officer

Jared DeMatteis

Deputy Chief Legal Officer

115 West 18th Street

New York, New York 10011

Telephone: (646) 491-9060

 

 

With copies to:

 

Graham Robinson

Laura Knoll

Ryan J. Dzierniejko

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036
Telephone: (212) 735-3000
Facsimile: (212) 735-2000

 

Roxane F. Reardon

John C. Ericson

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Telephone: (212) 455-2000

Facsimile: (212) 455-2502

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of
Securities to Be Registered
 

Proposed

Maximum
Aggregate
Offering
Price
 (1)(2)

  Amount of
Registration Fee 
(3)

Class A common stock, par value $0.001 per share

  $1,000,000,000   $121,200

 

 

(1)

Includes                shares of Class A common stock that the underwriters have the option to purchase.

 

(2)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

 

(3)

Previously paid.

The Registrant hereby amends this Registration Statement on such date as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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LOGO

 

The We Company Class A Common Stock Shares This is an initial public offering of Class A common stock by The We Company. The estimated initial public offering price is between $ and $ per share. Our Class A common stock has been approved for listing on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “WE”. We have three classes of common stock: Class A common stock, Class B common stock and Class C common stock. The Class A common stock has one vote per share and the Class B common stock and Class C common stock (together, “high-vote stock”) have ten votes per share. Holders of our Class A common stock, Class B common stock and Class C common stock vote together as a single class on all matters, except as otherwise set forth in this prospectus or as required by applicable law. The holders of our outstanding shares of high-vote stock will hold approximately % of the voting power of our outstanding capital stock upon completion of this offering, and Adam Neumann, our Co-Founder and Chief Executive Officer, will hold or have the ability to control approximately % of the voting power of our outstanding capital stock upon completion of this offering. Following this offering, we will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq. We will be treated as an “emerging growth company” under the federal securities laws for certain purposes until we complete this offering. Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 25. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. Per Share Total 1 Initial public offering price $ $ Underwriting discounts and commissions2 $ $ Proceeds to us, before expenses $ $ (1) Assumes no exercise of the underwriters’ option to purchase additional shares of our Class A common stock described below. (2) See “Underwriting” for a description of compensation payable to the underwriters. We have granted the underwriters an option for a period of 30 days following the date of this prospectus to purchase up to additional shares of Class A common stock. See “Underwriting”. The underwriters expect to deliver the shares of Class A common stock to purchasers on , 2019. Prospectus dated ,2019. We Goldman Sachs & Co. LLC J.P. Morgan BofA Merrill Lynch Barclays Citigroup Credit Sussie HSBC UBS Investment Bank Wells Fargo Securities BMO Capital Markets . Mizuho Securities Credit Agricole CIB . Cowen . Deutsche Bank Securities . Evercore ISI . Needham & Company . Stifel Academy Securities . Blaylock Van, LLC . C.L. King & Associates . CastleOak Securities, L.P. . Drexel Hamilton Great Pacific Securities . Loop Capital Markets . Mischler Financial Group, Inc. . Penserra Securities LLC . R. Seelaus & Co., LLC Ramirez & Co., Inc. . Roberts & Ryan . Siebert Cisneros Shank & Co., L.L.C. . The Williams Capital Group, L.P. Subject to completion, dated September 13, 2019 The Exchange information Commission in this is preliminary effective. This prospectus preliminary is not prospectus complete and is not may an be offer changed. to sell nor The does securities it seek may an offer not be to sold buy until these the securities registration in any statement jurisdiction filed where with the the Securities offer or sale and is not permitted.


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LOGO

WE DEDICATE THIS TO THE ENERGY OF WE- GREATER THAN ANY ONE OF US BUT INSIDE EACH OF US.

 


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LOGO

ABCDEFG A WEWORK, COMMUNITY TEAMOlivia Thompson, Alex FeldmanB WEWORK, CREATIVE DESIGN TEAMDevin Vermeulen (Employee #7),Jeremiah Britton (Employee #22 C WEWORK, CHIEF ARCHITECT BJARKE INGELS Shown with BIG partner Daniel SundlinD STRIPE, MEMBER Molly McArdle, Nate SaeteE DROPBOX, MEMBER Jade Dhir, Ryan Cahalane, Jeff Justice F SKAI BLUE MEDIA, MEMBER Javier Alonzo, Christina Ciabattoni,Brandon Thompson, Rakia ReynoldsG QUEEN OF RAW, WEWORK MEMBERAND CREATOR AWARDS WINNERPhil Derasmo, Stephanie Benedetto

 


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TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     25  

Cautionary Note Regarding Forward-Looking Statements

     54  

Market, Industry and Other Data

     56  

Use of Proceeds

     57  

Dividend Policy

     58  

Capitalization

     59  

Dilution

     61  

Selected Historical Consolidated Financial and Operating Information

     63  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     66  

Business

     129  

Management

     173  

Executive Compensation

     178  

Principal Stockholders

     186  

Description of Capital Stock

     190  

Description of Indebtedness

     196  

Certain Relationships and Related Party Transactions

     198  

Shares Eligible for Future Sale

     210  

U.S. Federal Income Tax Considerations for Non-U.S. Holders

     212  

Underwriting

     215  

Legal Matters

     222  

Experts

     222  

Where You Can Find More Information

     222  

Index to Consolidated Financial Statements

     F-1  

 

 

You should rely only on the information contained in this prospectus or contained in any free writing prospectus that we have filed with the Securities and Exchange Commission (the “SEC”). Neither we nor the underwriters have authorized anyone to provide you with additional information. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

We are offering to sell, and seeking offers to buy, our Class A common stock only in jurisdictions where offers and sales are permitted. For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering and the distribution of this prospectus outside the United States.

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “we”, “our”, “us”, “the Company” and “our company” refer to The We Company (or any predecessor entities, including WeWork Companies Inc.) and its consolidated subsidiaries. Certain amounts, percentages and other figures presented in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals, dollars or percentages may not represent the arithmetic summation or calculation of the figures that accompany them.

Until                     , 2019 (25 days after the date of this prospectus), all dealers that buy, sell or trade in our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding whether to purchase our Class A common stock in this offering. You should read the entire prospectus carefully, including the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”, before making an investment decision.

We use the term “members” to refer to the individuals and organizations that enter into membership agreements with us and “memberships” to refer to the cumulative number of memberships that they purchase. “Memberships” include both WeWork memberships (which provide access to a workstation) and on-demand memberships (which provide access to shared workstations or private spaces as needed, by the minute, by the hour or by the day).

Our Story

We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness. We have built a worldwide platform that supports growth, shared experiences and true success. We provide our members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure. We believe our company has the power to elevate how people work, live and grow.

In early 2010, we opened our doors to our first member community at 154 Grand Street in New York City. In the beginning, our members consisted mostly of freelancers, start-ups and small businesses. Over the past nine years, we have rapidly scaled our business while honoring our mission. Today, our global platform integrates space, community, services and technology in over 528 locations in 111 cities across 29 countries. Our 527,000 memberships represent global enterprises across multiple industries, including 38% of the Global Fortune 500. We are committed to providing our members around the world with a better day at work for less.

 

 

 

LOGO

Source: Global Impact Report commissioned by us and produced in partnership with HR&A Advisors, Inc. (“Global Impact Report”) and WeWork member census. See “Market, Industry and Other Data” for more information about the Global Impact Report.



 

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Our Global Platform

 

 

 

LOGO

We have proven that community, flexibility and cost-efficiency can benefit the workplace needs of everyone from global citizens to global enterprises. We pioneered a “space-as-a-service” membership model that offers the benefits of a collaborative culture, the flexibility to scale workspace up and down as needed and the power of a worldwide community, all for a lower cost. Through iterative product development at scale and significant investment in technology infrastructure, we have demonstrated that we can build better solutions for less money. We are changing the way people work globally and, in the process, we have disrupted the largest asset class in the world—real estate.

We start by looking at space differently: as a place to bring people together, build community and enhance productivity. Philosophically, we believe in bringing comfort and happiness to the workplace. We employ over 500 designers and architects who work relentlessly to create spaces that are beautiful but simple, elevated but approachable, global yet locally unique, all delivered at a high quality without the associated expense. Next, we add a team of over 2,500 trained community managers who foster human connection through collaboration and holistically support our members both personally and professionally. Lastly, with a persistent dedication to improving the member experience, we add products and services to our platform, either by building them ourselves, acquiring them or entering into partnerships. The entire member experience is powered by technology designed to enable our members to manage their own space, make connections among each other and access products and services, all with the goal of increasing our members’ productivity, happiness and success.



 

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Technology is at the foundation of our global platform. Our purpose-built technology and operational expertise has allowed us to scale our core WeWork space-as-a-service offering quickly, while improving the quality of our solutions and decreasing the cost to find, build, fill and run our spaces. We have over 1,000 engineers, product designers and machine learning scientists that are dedicated to building, integrating and automating the complex systems we use to operate our business. As a result, we are able to deliver a premium experience to our members at a lower price relative to traditional alternatives.

Cost Per Employee: WeWork Versus Standard Lease

 

 

 

LOGO

 

(1)

Sources: Building Owners and Managers Association (BOMA); CoStar Office Market Statistics; International Facility Management Association (IFMA); CBRE Office Occupancy Costs; Cushman Global Occupancy Report 2017; and third-party research. Comparison data represents annualized costs based on an average of ten select city centers in the United States, Europe, South America and Asia that are representative of our key markets. “Standard lease” includes the costs associated with food and beverage, events, utilities, insurance, property taxes, facilities management and base rent. “Build-out” includes the costs associated with construction, procurement and design services offset by a tenant improvement allowance amortized over an illustrative five-year lease.

 

(2)

Represents annualized average membership and service revenue per WeWork membership (“average revenue per WeWork membership”) for the six months ended June 30, 2019 across the same ten select city centers as above.

We have grown significantly since our inception. Our membership base has grown by over 100% every year since 2014. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.



 

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The more locations we strategically cluster in a given city, the larger and more dynamic our community becomes. This clustering effect leads to greater brand awareness for our offerings and allows us to realize economies of scale, which, in turn, drives stronger monetization of our global platform. We employ a deliberate city expansion strategy within existing and new markets to achieve global scale. We believe that operating efficiencies and the benefits of global scale have allowed us to capture a multiplying demand for our space-as-a-service offering.

As we expand, we continue to add new members at a strong pace while also strengthening our relationships with existing members. Of the new memberships added in 2018, 35% were attributable to organizations that were already members at the end of 2017. Across our member community, we have high retention rates and expanding relationships, reflecting high member satisfaction with our platform.

Large enterprises are increasingly recognizing the value proposition of our global platform. With our space-as-a-service model, we can provide a headquarters in London, a satellite office in Beijing, Berlin or Buenos Aires, or a group of on-demand workstations across San Francisco. Through our variety of space solutions, we can meet an enterprise’s distinct needs on a flexible and cost-effective basis with availability around the world. We help amplify and energize an enterprise’s culture, sparking innovation, enhancing productivity and helping the organization attract and retain talent. As of June 1, 2019, 40% of our memberships were with organizations with more than 500 employees (which we refer to as enterprise members), double the 20% as of March 1, 2017. We expect enterprise to continue to be our fastest growing membership type.

We monetize our platform through a variety of means, including selling memberships, providing ancillary value-added products and services to our members and extending our global platform beyond work. Today, we are signing more multi-year membership agreements for various space solutions across our global platform: the average commitment term of our membership agreements has nearly doubled from approximately eight months as of December 1, 2017 to more than 15 months as of June 1, 2019.

We strive to operate our business so that each new location is accretive to our long-term financial performance. After an initial investment in finding a new location, signing a lease and building out the space, we begin to fill the new location with members. From that point forward, each location adds members to our platform and revenue to our income statement. Once a location has been open to members for more than 24 months, occupancy is generally stable and the location typically generates a recurring stream of revenue that covers our location operating expenses and contributes to the recoupment of our initial investment in the location.

As we build and open more locations within existing markets, expand to new markets and scale our suite of products and services, we increase the value of our platform to our members and create additional capacity for incremental monetization of our platform. And as of today, we estimate that our market penetration in our 280 target cities globally is approximately 0.2%. We intend to continue deploying capital to grow and rapidly open new locations, relying on the experience, expertise, brand and scale that we have developed to date. We will leverage our leadership position to capture the global opportunity by growing in existing and new markets and expanding the scope of our solutions and the products and services we offer our members.

We continue to learn from our data and experiences to innovate on what drives our member success and execute using our purpose-built technology and mission-driven team. We believe that we have laid the foundation to capitalize on our significant market opportunity by continuing to reinvent the future of work.

We are just getting started.



 

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Our Opportunity

We are reinventing the way people work and transforming the way individuals and organizations relate to the workplace. When we started, it was obvious to us that the solutions available in the market were not meeting the needs of the modern workforce and did not offer the community, flexibility and global mobility that individuals and organizations needed to grow and succeed. Rather than a static solution locked to a long-term lease, we imagined the future of work: dynamic, well-designed workspaces for less, a suite of value-added products and services, all powered by data, analytics and deeply integrated technology that helped our members unlock creativity and productivity.

We believe the following trends are enabling the re-invention of work and will allow us to continue to grow our business:

 

   

Urbanization. People are moving to major global urban centers, prioritizing greater accessibility to services and increased human connection.

 

   

Globalization. The world is increasingly connected through trade and the movement of capital, people and information across borders.

 

   

Independent workforce. People are increasingly engaged in independent work.

 

   

Flexible solutions. Individuals and organizations are increasingly looking to lower fixed costs by converting long-term lease obligations into flexible solutions that can expand and contract with their evolving space needs in a capital-efficient manner.

 

   

Workplace culture. People are increasingly seeking environments that humanize the work experience.

 

   

Sharing economy. People are demonstrating a greater willingness to share, driven by a desire for value, quality and variety.

Addressable Market Size

Individuals and organizations turn to us directly to solve their workspace needs because of the value of our integrated solution—space, community, services and technology—and the scale of our global platform. As a result, we are able to aggregate demand and match an individual or organization to the right space, at the right time, at the right price. By acting in this role of demand aggregator, we are able to choose strategically where and how fast to grow.

 

 

 

LOGO

In the 111 cities in which we had locations as of June 1, 2019, we estimate that there are approximately 149 million potential members. For U.S. cities, we define potential members by the estimated number of desk jobs based on data



 

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from the Statistics of U.S. Businesses survey by the U.S. Census Bureau. For non-U.S. cities, we consider anyone in select occupations defined by the International Labor Organization—including managers, professionals, technicians and associate professionals and clerical support workers—to be potential members, because we assume that these individuals need workspace in which they have access to a desk and other services. We view this as our addressable market because of the broad variety of professions and industries among our members, the breadth of our solutions available to individuals and organizations of different types and our track record of developing new solutions in response to our members’ needs.

We expect to expand aggressively in our existing cities as well as launch in up to 169 additional cities. We evaluate expansion in new cities based on multiple criteria, primarily our assessment of the potential member demand as well as the strategic value of having that city as part of our location portfolio. Based on data from Demographia and the Organization for Economic Cooperation and Development, we have identified our market opportunity to be 280 target cities with an estimated potential member population of approximately 255 million people in aggregate.

When applying our average revenue per WeWork membership for the six months ended June 30, 2019 to our potential member population of 149 million people in our existing 111 cities, we estimate an addressable market opportunity of $945 billion. Among our total potential member population of approximately 255 million people across our 280 target cities globally, we estimate an addressable market opportunity of $1.6 trillion.

We are able to deliver a premium experience to our members at a lower price relative to traditional alternatives. Data from CBRE Group and Cushman & Wakefield indicates that employers across 155 global cities for which data is available and in which we have existing or planned locations spend a weighted average of approximately $11,700 in occupancy costs per employee each year. By applying the average employee occupancy costs to our potential member population of 149 million people in our existing 111 cities, we estimate a total opportunity of $1.7 trillion. Although average revenue per WeWork membership has declined, and could continue to decline if we expand into lower-priced markets, among the approximately 255 million potential members across our 280 target cities globally, we estimate a total opportunity of $3.0 trillion.

 

 

 

LOGO

 

(1)

As of June 1, 2019.

 

(2)

Includes existing 111 cities as of June 1, 2019.

We believe these total opportunities reflect the amount employers are willing to spend and present an opportunity for us to capture greater wallet share through additional solutions and product and service offerings. We believe that we will be able to capture a portion of this existing spend per employee given our powerful brand and what we believe is a significant first-mover advantage over our competitors as the pioneer of the space-as-a-service model. We believe that



 

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our leadership position in this market, which we expect will benefit from trends enabling the re-invention of work, provides us a strong runway to continue growing. Based on our calculations, we have realized approximately 0.2% of our total opportunity in our 280 target cities globally, and even in our ten largest markets we have only 0.6% penetration today.

As we have scaled our business, our membership community has expanded from mostly freelancers, start-ups and small businesses to global enterprises. Based on data from the U.S. Census Bureau, Eurostat and the World Bank, we estimate 38%, or 98 million people, of our target addressable population to come from enterprises.

Space-as-a-service is an entry point to the category of work. As our business model evolves, our physical platform grows and our membership base expands, we expect to use the same principles of demand aggregation to continue to offer a growing portfolio of products and services to meet our members’ needs. We believe these products and services will be a driver of higher margin revenue growth, further increasing our opportunity.

Our Community

Nine years ago, we had a mission to create a world where people work to make a life, not just a living. We believed that if we created a community that helped people live life with purpose, we could have a meaningful impact on the world. From the moment we started, we had conviction that there was an entrepreneurial spirit that was underserved. We knew there were creators all around the world who were looking for a better workplace solution at a lower price.

We built communities first in New York, then San Francisco, Los Angeles, Boston and Seattle. In 2014, we made a bold decision to expand internationally to cities around the world while simultaneously building our brand and presence in the United States. We started in London, followed soon after by Tel Aviv, and by 2016, we had opened our doors in Shanghai, the first of our locations in Asia, as well as in Mexico City, the first of our locations in Latin America.

As our global community grew, we realized that community, flexibility and cost efficiency can benefit the employee needs of organizations of all sizes. In 2016, we took another leap and made the strategic decision to expand our focus to meet the needs of a broader range of organizations, particularly enterprises. Enterprise organizations increasingly seek cost-efficient, flexible and scalable workplace solutions and a workplace environment that fosters strong community, promotes productivity and increases employee engagement. Our global platform directly addresses these needs for enterprise organizations, effectively and immediately.

Our community team embodies the energy and spirit of our diverse membership base. They are not only strong operators, but also mission-driven individuals inspired by the opportunity to connect and empower others. They work each day to support our community holistically, understand our members’ personal and professional goals, program local experiences and events, recommend services and make introductions among members who can help each other succeed.

We integrate community technology across all of our operations to further enhance the value we deliver to our members. Our WeWork app enables our members to easily book space, connect with other members for advice or services and discover events and activities. To create the best member experience, we strive to pair human judgment and creativity with algorithms that amplify ideas quickly and globally. Our community teams provide a rich source of programming ideas, and with an average of over 2,500 events occurring per week, we can develop insights quickly on what works best for members with select interests.

These events are one of many ways in which we view space as a place to bring people together and build communities. Each of our spaces is designed to make our members feel welcome and at home, and to encourage a sense of belonging. We believe that individuals are more productive when they are able to express their full and authentic selves, so we aspire to be as inclusive as possible. Our design contributes to our success. We foster collaboration by providing design elements such as exposed internal staircases, open floorplans, communal meeting rooms and centrally located refreshments. Our spaces and their unique look and feel are the signature of our brand. All of our spaces follow global design guidelines but reflect freedom of expression at local level as part of our global-local playbook.



 

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LOGO



 

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Our Space-as-a-Service Offering

We pioneered a “space-as-a-service” membership model. Across our global portfolio of locations, we offer individuals and organizations the flexibility to scale workspace up and down as needed, with the ability to consume space by the minute, by the month or by the year. Our space-as-a-service offering significantly reduces the complexity of leasing real estate to a simplified membership model, while delivering a premium experience to our members at a lower price relative to traditional alternatives and moving fixed lease costs to variable costs for our members. Our membership model is transforming the way individuals and organizations consume commercial real estate.

 

 

 

LOGO

Our space-as-a-service membership model offers members global, 24/7 access to our locations, beautifully designed workspaces, flexible workspace configurations as needed, a common set of amenities, on-site community teams, a growing number of value-added products and services and a member experience powered by technology.

Our membership offerings are designed to accommodate our members’ distinct space needs. We provide standard, configured and on-demand memberships within our spaces. We also offer Powered by We, a premium solution configured to an organization’s needs and deployed at the organization’s location. Powered by We leverages our analysis, design and delivery capabilities to beautify and optimize an existing workplace, while also offering an organization increased efficiencies and an option to invigorate its spaces through our community offerings. The technology we deploy includes software and hardware solutions that deliver improved insights and an easier-to-use workplace experience for employees.

 

 

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Our Economics

Our strong unit economics, together with the increasing cost efficiency with which we open new locations, gives us the conviction to continue to invest in finding, building and filling locations in order to drive long-term value creation.

The profitability profile of our business is a managed outcome driven by the maturity of our locations, or the length of time a location has been open to our members. We define locations that have been open for more than 24 months as mature. Once a location reaches maturity, occupancy is generally stable, our initial investment in build-out and sales and marketing to drive member acquisition is complete and the location typically generates a recurring stream of revenues and contribution margin (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contribution Margin” for the definition of and additional information about this non-GAAP metric).

As we continue to pursue rapid growth, we continue to operate in a state where the majority of our locations are non-mature and have not reached stable operating performance. As of June 1, 2019, only 30% of our open locations were mature, with the remaining 70% of our open locations having been open for 24 months or less. If we stopped investing in our growth and instead allowed our existing pipeline of locations to mature, we would no longer incur capital investments to build out new spaces or the initial expenses associated with driving member acquisition at new locations. Rather, we expect that each mature location would generate a recurring stream of revenues and contribution margin. We believe that the flexibility to manage our growth by focusing on our existing pipeline of locations and allowing them to mature presents us with an opportunity to manage our profitability profile.

 

LOGO

 

(1)

Represents workstation capacity in our open locations plus the estimated number of workstations in our pre-opening locations (which includes future locations in the “sign” and “build” phases) and the estimated number of workstations at additional locations in the “find” phase that we expect to become open locations based on our actual conversion rate of locations in the “find” phase of our pipeline in the 12 months ended June 30, 2019. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business Model—Lifecycle of a Location and Factors Affecting Our Performance”.



 

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As we continue to focus on growing our global platform, certain metrics may be impacted by the geographic mix of our locations and the costs associated with establishing stabilized occupancy levels. For example, average revenue per WeWork membership has declined, and we expect it to continue to decline, as we expand internationally into lower-priced markets. In addition, we expect to continue to invest in sales and marketing as we open new locations. As we build and open more spaces in existing and new markets, we create additional capacity that lays the foundation for incremental revenue and future profits. As a result, we intend to continue to invest in growth as we believe the timing of our future profitability depends to a significant degree on levers we control.

 

   

We can prioritize growth within our existing pipeline. By focusing on our existing pipeline of locations, we would increase the percentage of our location pipeline comprised of mature locations. A larger percentage of mature locations allows us to avoid incurring future capital investments to build out new spaces or the initial expenses associated with driving member acquisition at new locations.

 

   

We can control the speed of growth of our new locations. We believe decreasing our growth increases occupancy and provides us with price elasticity because of the limit on supply. We have seen this occur where we have strategically slowed growth in certain cities. For example, following the Brexit referendum, we temporarily slowed our growth in London, resulting in an incremental 10 percentage points of occupancy. We have since resumed more rapid growth in London. As of June 1, 2019, our occupancy in London was 93%.

 

   

We are just beginning to add value-added products and services to our global platform. As we proactively seek additional partnership, acquisition and innovation opportunities, we will be able to provide additional products and services to our existing membership base by leveraging our physical spaces and our existing relationships. We expect sales of these products and services to provide incremental revenue at higher margins than our existing revenue streams.

 

   

We expect to focus on more capital-efficient approaches to growing our global platform. We do not subsidize or incentivize our space providers. Instead, landlords generally subsidize us by providing tenant improvement allowances that help fund our build-outs, with the remainder of the build-out costs covered by us. We expect to strategically focus on growth through additional capital-efficient approaches, including as we expand into markets where tenant improvement allowances are less common. We can do this through our Powered by We solution, in which an organization pays us for the costs associated with the build-out of their space, as well as through continuing to enter into management agreements, participating leases and other occupancy arrangements under which the landlord pays in whole or in part for the build-out costs. We expect any increase in build-out costs resulting from the expansion of configured solutions for our growing enterprise member base to be offset with increases in the contribution margin and committed revenue backlog associated with longer-term commitments for these configured spaces.



 

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Our Global Platform

We envision a future in which our global platform is a one-stop shop where members have access to all of the products and services they need to enable them to work, live and grow. We have begun to build a suite of We Company offerings and develop a network of third-party partners to address our members’ needs. With the support of our global footprint, our partners are presented with a unique opportunity to reach new customers and efficiently expand their businesses to new markets. While we are in the early stages of our platform journey, we are excited by the initial results and inspired by the potential.

Our members spend hundreds of millions of hours inside our locations annually. By leveraging our local density, global reach and technology infrastructure, we are able to aggregate demand and facilitate the delivery of value-added products and services to our members. Our physical spaces are the foundation of our global platform and allow us to deliver differentiated products and services as we scale, further realizing our vision to deliver a better day at work for less.

We have leveraged our global platform to facilitate rewarding relationships between members, partners and The We Company. Our members get easy access to a diverse range of high-quality products and services tailored to their needs. Our carefully curated partners can connect directly with our members, a sought-after demographic of consumers and businesses, leading to a lower cost of customer acquisition and more efficient operations. The We Company benefits by increasing member satisfaction while at the same time generating incremental higher margin revenue. Finally, we create a feedback loop between members and partners, driving higher quality services and experiences while helping our partners build valuable customer relationships.

Our Strengths

 

 

 

LOGO

Vision

 

   

We have spent the last nine years building a founder-led, community company and executing on our vision of providing a better day at work for less.

 

   

Our global platform provides members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure.

Member Community

 

   

Our membership base has grown by over 100% every year since 2014, and over 50% of our members are located outside of the United States as of June 2019. Our 527,000 memberships include global enterprises across multiple industries and, notably, 38% of the Global Fortune 500. We expect enterprise to continue to be our fastest growing membership type, currently representing 40% of our memberships.

 

   

As we expand, we continue to add new members at a strong pace while also strengthening our relationships with our existing members. Of the new memberships added in 2018, 35% were attributable to organizations that were already members at the end of 2017.



 

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Global Platform

 

   

We have a global brand with a platform spanning 528 locations in 111 cities across 29 countries. Individuals and organizations turn to us directly to solve their workplace needs. As a result, we are able to aggregate demand and match an individual or organization to the right space, at the right time, at the right price.

 

   

We offer a space-as-a-service model that we operationalize by using a global-local playbook powered by technology.

Attractive Economics

 

   

As of June 30, 2019, our run-rate revenue was $3.3 billion, representing 86% year-over-year growth.

 

   

We strive to operate our business so that each new location is accretive to our long-term financial performance, resulting in growing contribution margin. We strategically cluster locations in cities, leading to greater brand awareness and economies of scale, which, in turn, drives stronger monetization of our global platform.

Future Impact

 

   

We estimate that our penetration in our 280 target cities globally is approximately 0.2%. We have invested in the infrastructure for us to expand in existing and new markets, as well as expand the scope of our solutions and the products and services we offer our members.

 

   

We have created a powerful ecosystem and brand that benefit not only our members and partners, but also our landlords, neighborhoods and cities through shared value creation. We believe our powerful brand, global footprint, scalable business model and cost advantage are significant competitive advantages that will allow us to further penetrate existing and new markets and maximize the future impact of the WeWork effect.

Our Growth Strategy

We are focused on long-term sustainable growth and intend to continue to learn from our data and experiences to innovate on what drives our member success and execute using our purpose-built technology and mission-driven team. We believe that we have laid the foundation to capitalize on our significant market opportunity by continuing to reinvent the future of work.

We intend to grow by:

 

   

Expanding in new and existing markets.

 

   

Enhancing product and service offerings.

 

   

Developing and strengthening relationships with enterprise members.

 

   

Lowering upfront capital costs and improving operational efficiency.

 

   

Investing in technology.

Recent Developments

Governance and Other Changes

Corporate governance is important to our company. We are making a number of changes to our proposed governance structure in response to market feedback.

As a result, our board of directors and Adam have agreed to implement the following changes to our governance structure:

 

   

We will appoint a lead independent director by the end of the year.

 

   

Our high-vote stock will decrease from 20 votes per share to 10 votes per share.



 

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The voting power of our high-vote stock will sunset and automatically decrease to one vote per share in the event that Adam becomes permanently incapacitated or dies.

 

   

As previously disclosed, the voting power of our high-vote stock will also sunset and automatically decrease to one vote per share in the event that the aggregate number of shares of our high-vote stock owned by Adam and certain of his permitted transferees represents less than 5% of our outstanding capital stock.

 

   

We will maintain a board consisting of a majority of independent directors and all of the committees and sub-committees of our board will consist of at least a majority of independent directors. No member of Adam’s family will sit on our board.

 

   

Any chief executive officer who succeeds Adam will be selected by our board of directors, acting as a group. We will not rely on a succession committee. Our board has the ability to remove our chief executive officer.

 

   

In addition to appointing Frances Frei to our board of directors, we have committed to adding another director to our board within the next year, with a commitment to increasing the board’s gender and ethnic diversity.

Adam has also decided to take the following actions:

 

   

Adam will give to the company any profits he receives from the real estate transactions he has entered into with the company.

 

   

As previously disclosed, Adam no longer has the power, discretion or authority to make investment and management decisions affecting the properties he transferred to be managed by ARK and will not enter into future real estate transactions with the company.

 

   

As previously disclosed, Adam has entered into a lock-up agreement for one year with the underwriters in this offering.

 

   

Adam will also limit his ability to sell in each of the second and third years following this offering to no more than 10% of his shareholdings.

 

   

As previously disclosed, we have unwound an issuance of partnership interests to Adam that he received for transferring “we” family trademarks to the company.

 

   

Rebekah and Adam Neumann remain committed to donating $1 billion to fund charitable causes over the next 10 years.



 

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Risk Factors

Our business is subject to a number of risks and uncertainties, as more fully described under “Risk Factors” in this prospectus. These risks could materially and adversely impact our business, financial condition, results of operations and prospects, which could cause the trading price of our Class A common stock to decline and could result in a loss of all or part of your investment. Some of these risks include:

 

   

the sustainability of our rapid growth and our ability to manage our growth effectively;

 

   

our ability to expand in new and existing markets and enhance our solutions and product and service offerings;

 

   

our ability to achieve profitability at a company level in light of our history of losses;

 

   

our ability to retain existing members and attract new members;

 

   

risks related to the long-term and fixed-cost nature of our leases;

 

   

risks relating to our ability to generate sufficient cash and to obtain financing on adequate terms;

 

   

our ability to maintain the value and reputation of our brand;

 

   

risks related to our transactions with related parties;

 

   

our Co-Founder and Chief Executive Officer has control over key decision-making as a result of his control over a majority of the total voting power of our outstanding capital stock; and

 

   

the success of our strategic partnerships.

Implications of Being an Emerging Growth Company

We will be treated as an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), for certain purposes until the earlier of the date we complete this offering and December 31, 2019. As such, we are permitted to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. In particular, in this prospectus, we have taken advantage of certain reduced disclosure obligations regarding the provision of selected financial data and executive compensation arrangements. We have also taken advantage of the extended transition period for complying with new or revised accounting standards available to emerging growth companies. Accordingly, the information contained in this prospectus may be different from the information you might receive from other public companies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—JOBS Act”.

Our Principal Stockholder and Our Status as a Controlled Company

Following the completion of this offering, as a result of his share ownership, together with his voting arrangements with certain stockholders, Adam Neumann, our Co-Founder and Chief Executive Officer, will be able to exercise voting control with respect to an aggregate of                  shares of our Class A common stock,                  shares of our Class B common stock and                      shares of our Class C common stock, representing approximately     % of the total voting power of our outstanding capital stock (or approximately     % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). Accordingly, Adam will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors. As a founder-led company, we believe that this voting structure aligns our interests in creating stockholder value.

Because Adam will control a majority of our outstanding voting power, we will be a “controlled company” under the corporate governance rules for Nasdaq-listed companies. Therefore, we may elect not to comply with certain corporate governance standards, such as the requirement that our board of directors have a compensation committee and nominating and corporate governance committee composed entirely of independent directors. For at least some period following completion of this offering, we intend to take advantage of these exemptions.



 

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Corporate Information

The We Company was incorporated under the laws of the state of Delaware in April 2019 as a direct wholly-owned subsidiary of WeWork Companies Inc. As a result of various reorganization transactions undertaken in July 2019, The We Company became the holding company of our business, and the then-stockholders of WeWork Companies Inc. became the stockholders of The We Company.

The We Company holds an indirect general partner interest and indirect limited partner interests in The We Company Management Holdings L.P. (the “We Company Partnership”). The We Company, through the We Company Partnership and other subsidiaries, holds all the assets held by WeWork Companies Inc. prior to the reorganization and is subject to all the liabilities to which WeWork Companies Inc. was subject prior to the reorganization. The We Company will consolidate the financial results of its subsidiaries, including the We Company Partnership, for financial accounting purposes. In addition to The We Company’s indirect partnership interests in the We Company Partnership, certain members of our management team and their related entities hold partnership interests in the We Company Partnership.

The diagram below is a simplified depiction of our organizational structure immediately following the completion of this offering:

 

LOGO

 

(1)

Corresponds to partnership interests in We Company Partnership held by certain members of our leadership team and their affiliates.

 

(2)

We own 80% of the general partner and manager of ARK, but our capital commitments to its underlying real estate acquisition vehicles and joint ventures generally represent a small percentage of the total committed capital.

 

(3)

Management fee based on revenue from the applicable joint venture. ChinaCo, PacificCo and JapanCo are consolidated in the consolidated financial statements included elsewhere in this prospectus. 4% of the JapanCo management fee is held by JapanCo and used to reimburse sales and marketing expenses incurred by SoftBank.



 

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Our principal executive offices are located at 115 West 18th Street, New York, New York 10011, and our telephone number is (646) 491-9060. Our website address is www.we.co. Information contained on, or accessible through, our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference.

Channels for Disclosure of Information

Investors, the media and others should note that, following the completion of this offering, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website, press releases, public conference calls and webcasts.

The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media and others to follow the channels listed above and to review the information disclosed through such channels.



 

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THE OFFERING

 

Shares offered by us in this offering:

 

 

Class A common stock

             shares.

 

Option to purchase additional shares of Class A common stock


             shares.

 

Shares to be outstanding upon completion of this offering:

 

 

Class A common stock

             shares (or              shares if the underwriters exercise in full their option to purchase additional shares of our Class A common stock).

 

Class B common stock

             shares.

 

Class C common stock

             shares. Each holder of partnership interests (including profits interests) in the We Company Partnership (other than the direct and indirect subsidiaries of The We Company) will hold one share of Class C common stock per partnership interest in the We Company Partnership. Shares of Class C common stock have no economic rights.

 

Voting rights:

 

 

Class A common stock

One vote per share, representing, in the aggregate, approximately     % of the combined voting power of our capital stock outstanding upon completion of this offering (or     % if the underwriters exercise in full their option to purchase additional shares of our Class A common stock).

 

Class B common stock

Ten votes per share, representing, in the aggregate, approximately     % of the combined voting power of our capital stock outstanding upon completion of this offering (or     % if the underwriters exercise in full their option to purchase additional shares of our Class A common stock).

 

Class C common stock

Ten votes per share, representing, in the aggregate, approximately     % of the combined voting power of our capital stock outstanding upon completion of this offering (or     % if the underwriters exercise in full their option to purchase additional shares of our Class A common stock).

 

Voting as a single class

Holders of our Class A common stock, Class B common stock and Class C common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise set forth in this prospectus or as required by applicable law. Adam Neumann, our Co-Founder and Chief Executive Officer, will hold or have the ability to control approximately     % of the total voting power of our outstanding capital stock upon completion of this offering (or approximately     % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our Class A common stock) and will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors. See “Description of Capital Stock”.

 

Conversion and related rights:

 

 

Class A common stock

Our Class A common stock is not convertible into any other class of shares.

 

Class B common stock

Our Class B common stock is convertible into shares of our Class A common stock on a one-for-one basis at the option of the holder. In addition, each share of Class B common stock will convert automatically



 

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into one share of Class A common stock upon any transfer of such share, except for certain transfers described in our restated certificate of incorporation. Additionally, each share of Class B common stock will convert automatically into one share of Class A common stock in the event that the aggregate number of outstanding shares of high-vote stock owned by Adam Neumann and certain of his permitted transferees represents less than 5% of the aggregate number of then-outstanding shares of Class A common stock, Class B common stock and Class C common stock, or upon Adam’s permanent incapacity or death. See “Description of Capital Stock—Common Stock—Conversion, Exchange and Transferability” for more information.

 

Class C common stock

Subject to certain restrictions, holders of partnership interests (other than direct and indirect subsidiaries of The We Company) may exchange their partnership interests for, at our option, shares of Class B common stock or cash. Upon the exchange of partnership interests in the We Company Partnership or the forfeiture of profits interests in the We Company Partnership, the corresponding shares of Class C common stock will be redeemed for no consideration. Shares of Class C common stock cannot be transferred other than in connection with the transfer of the corresponding partnership interests in the We Company Partnership.

 

Use of proceeds

Assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our Class A common stock in this offering will be $             (or $             if the underwriters exercise in full their option to purchase additional shares of our Class A common stock), less underwriting discounts and commissions and estimated offering expenses.

 

  The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for us and our stockholders.

 

  We currently intend to use the net proceeds of this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. Pending their use, we intend to invest the net proceeds of this offering in short-term, investment grade, interest-bearing instruments or hold them as cash. See “Use of Proceeds”.

 

Dividends

We do not expect to pay dividends on our Class A common stock or our Class B common stock in the foreseeable future. Our Class C common stock has no economic rights. See “Dividend Policy”.

 

Listing

Our Class A common stock has been approved for listing on Nasdaq under the trading symbol “WE”.

 

Risk factors

Investing in our Class A common stock involves risks. See “Risk Factors” for a discussion of certain factors that you should carefully consider before making an investment decision.

Unless otherwise noted, the number of shares of Class A common stock, Class B common stock and Class C common stock to be outstanding upon completion of this offering is based on                  shares of Class A common stock,                  shares of Class B common stock and                  shares of Class C common stock outstanding as of August 15, 2019. The                  shares of Class C common stock outstanding as of August 15, 2019 referred to in the prior sentence correspond to the              profits interests in the We Company Partnership outstanding for which all vesting conditions had been satisfied as of August 15, 2019, as described below.



 

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Vested profits interests in the We Company Partnership are exchangeable for (at our election) shares of our Class B common stock or cash, assuming that the trading price of our Class A common stock exceeds the per-unit “distribution threshold” for such profits interests (which represents the liquidation value of a share of our Class B common stock on the date such profits interests were granted). The exchange value takes into account, among other things, the trading price of our Class A common stock and what is known as the “catch-up base amount” of the profits interests being exchanged. A “catch-up base amount” is similar to an option exercise price and represents, with respect to each profits interest exchanged, the amount of value of a share of Class B common stock that the profits interest holder will not receive upon exchange. A higher trading price and a lower catch-up base amount each generally results in more shares being issued to the exchanging holder, except that the number of shares of Class B common stock issuable upon exchange of each profits interest can never be greater than one.

As of August 15, 2019,              profits interests issued by the We Company Partnership were outstanding, each with a catch-up base amount equal to $             and a distribution threshold of $             or greater. For illustrative purposes, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, the number of shares of Class B common stock issuable upon exchange of these profits interests would be as follows:

 

   

                 shares of Class B common stock would be issuable upon exchange of the profits interests outstanding for which all applicable vesting conditions had been satisfied as of August 15, 2019;

 

   

                 shares of Class B common stock would be issuable upon exchange of the profits interests outstanding as of August 15, 2019 that are subject solely to time-based vesting conditions following the completion of this offering; and

 

   

                 shares of Class B common stock would be issuable upon exchange of the profits interests outstanding as of August 15, 2019 that are subject to both time-based and performance-based vesting conditions (as described under “Executive Compensation—Incentivizing Our Leadership Team”) following the completion of this offering.

Profits interests do not have any direct voting rights with respect to The We Company. However, recipients of profits interests in the We Company Partnership have been granted one share of our Class C common stock with respect to each profits interest received. Each holder of unvested profits interests has agreed to vote the shares of our Class C common stock corresponding to their unvested profits interests in the same proportion as the votes cast by other holders of our common stock. As a result, unless otherwise noted, all information in this prospectus excludes the shares of Class C common stock outstanding as of August 15, 2019 that correspond to profits interests in the We Company Partnership for which not all vesting conditions had been satisfied as of August 15, 2019.

Unless otherwise noted, all information in this prospectus also excludes:

 

   

                 shares of Class A common stock issuable upon the exercise of stock options outstanding as of August 15, 2019 at a weighted average exercise price of $             per share;

 

   

                 shares of Class B common stock issuable upon the exercise of stock options outstanding as of August 15, 2019 at a weighted average exercise price of $             per share;

 

   

                 shares of Class A common stock issuable upon the exercise of warrants outstanding as of August 15, 2019 at an exercise price of $13.12 per share, which warrants were issued to members at our first location;

 

   

                 shares of Class A common stock issuable upon the exercise of warrants outstanding as of August 15, 2019 at an exercise price of $0.001 per share;

 

   

up to                  shares of Class A common stock issuable in connection with the acquisitions described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Acquisitions” and up to                  shares of Class A common stock issuable in connection with earlier acquisitions;

 

   

                 shares of Class A common stock issuable upon the settlement of restricted stock units outstanding as of August 15, 2019 for which the time-based vesting condition had not been satisfied as of August 15, 2019



 

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(including shares of Class A common stock issuable upon the settlement of restricted stock units granted on August 25, 2019 under our existing equity incentive plan);

 

   

                shares of restricted Class A common stock that were unvested as of August 15, 2019;

 

   

                shares of Class A common stock reserved for future issuance under the new equity incentive plan we intend to adopt prior to the completion of this offering (the “2019 Plan”); and

 

   

                 shares of Class B common stock reserved for future issuance under the 2019 Plan to cover the exchange of profits interests in the We Company Partnership.

Unless otherwise indicated, the information contained in this prospectus assumes or gives effect to:

 

   

except in the historical financial statements included elsewhere in this prospectus, the consummation of the stock split to be effected on the closing date of this offering pursuant to which each share of our capital stock will be reclassified into                  shares;

 

   

no exercise of the outstanding options or warrants described above;

 

   

the issuance of                  shares of Class A common stock underlying restricted stock units for which the time-based vesting condition was satisfied as of August 15, 2019 and for which the performance-based vesting condition will be satisfied upon the completion of this offering (after withholding an aggregate of                  shares of Class A common stock underlying such restricted stock units to satisfy tax withholding obligations at an assumed tax rate of 40%);

 

   

the conversion of a convertible promissory note held by one of our investors (the “2014 convertible note”) into                  shares of Series C preferred stock, which will convert into shares of Class A common stock, as of 12:01 a.m. on the date of the closing of this offering;

 

   

the conversion of all our outstanding Series A, Series B, Series C, Series D-1, Series D-2, Series E, Series F, Series G and Series G-1 preferred stock (collectively, our “senior preferred stock”) and all of our Series AP-1, Series AP-2, Series AP-3 and Series AP-4 preferred stock (collectively, our “acquisition preferred stock”) into shares of Class A common stock as of 12:01 a.m. on the date of the closing of this offering;

 

   

the conversion of all of our outstanding junior preferred stock into an aggregate of                  shares of Class B common stock (together with the conversion of the 2014 convertible note and the conversion of all of our outstanding senior preferred stock and acquisition preferred stock into                  shares of Class A common stock, the “IPO-related security conversions”) as of 12:01 a.m. on the date of the closing of this offering;

 

   

the filing of our restated certificate of incorporation immediately prior to the completion of this offering;

 

   

the effectiveness of our restated bylaws immediately prior to the completion of this offering;

 

   

an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

that the underwriters’ option to purchase additional shares of our Class A common stock is not exercised.

Unless otherwise indicated, the information contained in this prospectus also does not give effect to the issuance of shares of our Class A common stock pursuant to the 2019 warrant (as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Note and Warrant Agreements”). Under the terms of the 2019 warrant, we have the right to receive $1.5 billion on April 3, 2020 in exchange for the issuance of                  shares of our Class A common stock at a price of $             per share (subject to equitable adjustment in the event of any further stock split, stock dividend, reverse stock split or similar recapitalization event from the closing of this offering through April 3, 2020).



 

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

WeWork Companies Inc. is the predecessor of The We Company for financial reporting purposes. The historical financial information of The We Company has not been included in this prospectus as it was a newly incorporated entity at the time of the various reorganization transactions undertaken in July 2019 and had no assets, liabilities or business transactions or activities during the periods presented in this prospectus. As The We Company has no interest in any operations other than those of WeWork Companies Inc. for the periods presented in this prospectus, the historical consolidated financial information included in this prospectus is that of WeWork Companies Inc.

The following tables present the summary historical consolidated financial and other operating information for WeWork Companies Inc., the predecessor of The We Company. The following summary consolidated financial information for the years ended December 31, 2016, 2017 and 2018 and as of December 31, 2017 and 2018 has been derived from the audited annual consolidated financial statements of WeWork Companies Inc. included elsewhere in this prospectus. The audited annual consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and are presented in U.S. dollars. The summary condensed consolidated financial information as of June 30, 2019 and for the six months ended June 30, 2018 and 2019 has been derived from the unaudited interim condensed consolidated financial statements of WeWork Companies Inc. included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the unaudited interim condensed consolidated financial statements of WeWork Companies Inc. The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period.

The information presented below should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.

 

     
    Year Ended December 31,     Six Months Ended June 30,  
  (Amounts in thousands, except share and per
  share data)
  2016     2017     2018     2018     2019  

  Consolidated statement of operations information:

         

  Revenue

   $ 436,099       $ 886,004       $ 1,821,751       $ 763,771       $ 1,535,420   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Expenses:

         

  Location operating expenses—cost of revenue (1)

    433,167        814,782        1,521,129        635,968        1,232,941   

  Other operating expenses—cost of revenue (2)

    —        1,677        106,788        42,024        81,189   

  Pre-opening location expenses

    115,749        131,324        357,831        156,983        255,133   

  Sales and marketing expenses

    43,428        143,424        378,729        139,889        320,046   

  Growth and new market development expenses (3)

    35,731        109,719        477,273        174,091        369,727   

  General and administrative expenses (4)

    115,346        454,020        357,486        155,257        389,910   

  Depreciation and amortization

    88,952        162,892        313,514        137,418        255,924   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Total expenses

    832,373        1,817,838        3,512,750        1,441,630        2,904,870   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Loss from operations

    (396,274)       (931,834)       (1,690,999)       (677,859)       (1,369,450)  

  Interest and other income (expense), net

    (33,400)       (7,387)       (237,270)       (46,406)        469,915   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Pre-tax loss

    (429,674)       (939,221)       (1,928,269)       (724,265)       (899,535)  

  Income tax benefit (provision)

    (16)       5,727        850        1,373        (5,117)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Net loss

    (429,690)       (933,494)       (1,927,419)       (722,892)       (904,652)  

  Net loss attributable to noncontrolling interests

    —        49,500        316,627        94,762        214,976   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Net loss attributable to WeWork Companies Inc.

   $ (429,690)      $ (883,994)      $ (1,610,792)      $ (628,130)      $ (689,676)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Net loss per share attributable to Class A and Class B common stockholders: (5)

         

  Basic

   $ (2.66)      $ (5.54)      $ (9.87)      $ (3.87)      $ (4.15)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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    Year Ended December 31,     Six Months Ended June 30,  
  (Amounts in thousands, except share and per
  share data)
  2016     2017     2018     2018     2019  

  Diluted

   $ (2.66)      $ (5.54)      $ (9.87)      $ (3.87)      $ (4.15)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted

    161,324,940        159,689,116        163,148,918        162,482,366       166,301,575  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Pro forma net loss per share attributable to Class A and Class B common stockholders: (3)

         

  Basic

 

   $ (4.41)        $ (3.20)  
 

 

 

     

 

 

 

  Diluted

 

   $ (4.41)        $ (3.20)  
 

 

 

     

 

 

 

  Weighted-average shares used to compute pro forma net loss per share attributable to Class A and Class B common stockholders, basic and diluted

 

    338,368,587          365,154,863   
     

 

 

     

 

 

 
                                         

 

(1)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $84.0 million, $154.1 million and $281.5 million for the years ended December 31, 2016, 2017 and 2018, respectively, and $123.7 million and $230.0 million for the six months ended June 30, 2018 and 2019, respectively.

 

(2)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $0, $1.2 million and $12.6 million in the years ended December 31, 2016, 2017 and 2018, respectively, and $5.7 million and $9.7 million for the six months ended June 30, 2018 and 2019, respectively.

 

(3)

Includes cost of revenue related to Powered by We in the amount of $0, $12.7 million and $57.9 million during the years ended December 31, 2016, 2017 and 2018, respectively, and $27.9 million and $85.1 million during the six months ended June 30, 2018 and 2019, respectively.

 

(4)

Includes stock-based compensation expense of $17.4 million, $260.7 million and $18.0 million for the years ended December 31, 2016, 2017 and 2018, respectively, and includes stock-based compensation expense of $10.5 million and $111.2 million for the six months ended June 30, 2018 and 2019, respectively.

 

(5)

See Note 22 to the audited annual consolidated financial statements and Note 24 to the unaudited interim condensed consolidated financial statements, each included elsewhere in this prospectus, for a description of how we compute basic and diluted net loss per share attributable to Class A and Class B common stockholders and pro forma basic and diluted net loss per share attributable to Class A and Class B common stockholders. Historical share and per share information does not give effect to the consummation of the stock split to be effected on the closing date of this offering. Pro forma share and per share information gives effect to the consummation of the stock split to be effected on the closing date of this offering pursuant to which each share of our capital stock will be reclassified into             shares.

 

   
    As of June 30, 2019  
  (Amounts in thousands)   Actual         Pro forma (1)             Pro forma as    
adjusted (2)
 

Consolidated balance sheet information:

     

Cash and cash equivalents

  $ 2,473,070         $                              $            

Total current assets

    3,032,323       

Property and equipment, net

    6,729,427       

Total assets

    27,047,235       

Total liabilities

    24,641,746       

Total convertible preferred stock included as temporary equity

    3,591,086       

Total redeemable noncontrolling interests included as temporary equity

    1,113,807       

Total equity (deficit)

    (2,299,404)      
                         

 

(1)

The pro forma balance sheet information in this table gives effect to the IPO-related security conversions, the conversion of the 2018 convertible note and the exercise of the 2018 warrant. The pro forma balance sheet information in this table also gives effect to stock-based compensation expense of approximately $55.3 million associated with the portion of restricted stock units and stock options for which the service period had been rendered as of June 30, 2019 but for which vesting is also contingent upon our initial public offering. This pro forma adjustment related to stock-based compensation expense of approximately $55.3 million has been reflected as an increase in additional paid-in capital and accumulated deficit. See Note 2 to the unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.

 

(2)

The pro forma as adjusted balance sheet information in this table gives effect to the transactions described in note (1) above as well as the issuance by us of                 shares of Class A common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus.



 

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Key Performance Indicators

In connection with the management of our WeWork space-as-a-service offering, we identify, measure and assess a variety of operational and financial metrics. The principal metrics we use in managing and evaluating our business are set forth below.

Any totals of the operational metrics presented as of a period end reflect the count as of the first day of the last month in the period. The first day of the month is traditionally one of the most active days at our locations as most move-ins and openings occur on the first of the month as part of our move-in, move-out (“MIMO”) process, where we support members who are new, existing, transferring or growing. First-of-the-month counts are used because the economics of those counts generally impact the results for that monthly period.

 

     
    As of December 31,      As of June 30,  
     2016      2017      2018      2018      2019  

Workstation capacity (in ones) (1)

    107,000        214,000        466,000        301,000        604,000  

Memberships (in ones) (2)

          87,000            186,000        401,000            268,000            527,000  

Enterprise membership percentage (3)

    18%        28%        38%        30%        40%  

Run-rate revenue (in billions) (4)

  $ 0.6      $ 1.1      $ 2.4      $ 1.8      $ 3.3  

Committed revenue backlog (in billions) (5)

  $ 0.1      $ 0.5      $ 2.6        N/R      $ 4.0  
                                             

N/R = Not reported

 

(1)

“Workstation capacity” represents the estimated number of workstations available at open WeWork locations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators—Workstation Capacity” for additional information about this metric.

 

(2)

“Memberships” represents the cumulative number of WeWork memberships and on-demand memberships. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators—Memberships” for additional information about this metric.

 

(3)

“Enterprise membership percentage” represents the percentage of our memberships attributable to organizations with 500 or more full-time employees. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators—Enterprise Membership Percentage” for additional information about this metric.

 

(4)

“Run-rate revenue” for a given period represents our revenue recognized in accordance with GAAP for the last month of such period multiplied by 12. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators—Run-Rate Revenue” for additional information about this metric.

 

(5)

“Committed revenue backlog” as of a given date represents total non-cancelable contractual commitments, net of discounts, remaining under agreements entered into as of such date, which we expect will be recognized as revenue subsequent to such date. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators—Committed Revenue Backlog” for additional information about this metric. We began reporting committed revenue backlog on a quarterly basis as of March 31, 2019.

Contribution Margin

We use contribution margin to assess the profitability and performance of our locations both in the aggregate and on a location by location basis. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contribution Margin” for the definition of and additional information about our contribution margin measures.



 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as the other information included in this prospectus, including the consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. The risks described below are not the only risks we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations and prospects. In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Please refer to “Cautionary Note Regarding Forward-Looking Statements” for more information regarding forward-looking statements.

Risks Relating to Our Business

Our business has grown rapidly, and we may fail to manage our growth effectively.

We have experienced rapid growth in our business, including in the number of our locations and in the size of our membership base. This rapid growth places a significant strain on our existing resources. Difficulties associated with our continued growth could result in harm to our reputation and could have a material adverse effect on our business, including our prospects for continued growth, and on our financial condition, results of operations and cash flows.

We expect our capital expenditures and operating expenses to increase on an absolute basis as we continue to invest in additional locations, launch additional solutions, products and services, hire additional team members and increase our marketing efforts. In particular, we expect to continue to invest in local infrastructure to support our continued growth. As we continue to decentralize and localize certain decision-making and risk management functions, we may discover that our internal processes are ineffective or inefficient. In particular, to manage our rapid growth, we will need to enhance our reporting systems and procedures and continue to improve our operational, financial, management, sales and marketing and information technology infrastructure. Continued growth could also strain our ability to maintain reliable service levels for our members. If we do not manage our growth effectively, increases in our capital expenditures and operating expenses could outpace any increases in our revenue, which could have a material adverse effect on our results of operations.

Our rapid growth may not be sustainable.

Our historical growth rates may not be indicative of future growth. The market for our solutions, products and services may not continue to grow at the rate we expect or at all, and our memberships may decline as a result of increased competition in the space-as-a-service sector or the maturation of our business. Additionally, as we grow, the ability of our management to source sufficient reasonably-priced opportunities for new locations of the type we have historically targeted or to develop and launch additional solutions, products and services may become more limited.

Our business strategy includes entering into new markets and introducing new solutions, products and services. This strategy is inherently risky, may not be successful and could be costly.

As part of our growth strategy, we intend to continue expansion into additional locations in existing and new markets within the United States and throughout the world, while also enhancing our product and service offerings. We may also continue to pursue new strategic opportunities, including real estate acquisition and management. Such expansion efforts also generally involve significant risks and uncertainties, including distraction of management from our existing solutions, products and services and the operations of our existing locations. As we attempt to grow our foothold in an evolving industry and acquire new businesses that enhance value for our members, we may encounter issues and risks not discovered in our development or analysis of such expansion efforts. Our operations in any new markets or solutions, products and services into which we expand may also generate less revenue or cash flow than our core WeWork space-as-a-service offering in our existing locations.

Our expansion efforts have required, and we expect them to continue to require, substantial resources and management attention. We spend significant time, money, energy and other resources trying to understand our members’ needs and working to accommodate them, which may include exploring and negotiating for new solutions,

 

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products and services. However, as we expand into new markets and introduce new solutions, products and services, our members may not be satisfied with our solutions, products and services, including any new offerings that we launch. The time, money, energy and other resources we dedicate to exploring and pursuing new solutions, products and services may be greater than the short-term, and potentially the total, returns from these new offerings.

We will also face new operational risks and challenges as we continue to enter into new markets. Expansion into foreign jurisdictions subjects us to legal, regulatory, economic and political risks that may be different from and additional to those that we face in jurisdictions where we currently operate, and we may operate at a disadvantage relative to competitors who are more familiar with local market practices and networks. Expansion into new solutions, products and services subjects us to similar risks as we compete with the many established participants in those markets, and we face additional regulatory, legal and execution risks as we implement new business practices and integrate a new offering into our existing range of solutions, products and services. To the extent the benefits of our expansion efforts do not meet our expectations, we may recognize a loss on our investment or gains that do not justify our investment. See “—We plan to continue expanding our business into markets outside the United States, which will subject us to risks associated with operating in foreign jurisdictions”.

Our success in this regard may increasingly depend on the financial success and cooperation of local partners and other third parties. For more information, see “—Our growth and success depends on our ability to maintain the value and reputation of our brand and the success of our strategic partnerships”.

We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level (as determined in accordance with GAAP) for the foreseeable future.

We had an accumulated deficit as of December 31, 2017 and 2018 and as of June 30, 2018 and 2019 and had net losses of $0.4 billion, $0.9 billion and $1.9 billion for the years ended December 31, 2016, 2017 and 2018, respectively, and $0.7 billion and $0.9 billion for the six months ended June 30, 2018 and 2019. Our accumulated deficit and net losses have historically resulted primarily from the substantial investments required to grow our business, including the significant increase in recent periods in the number of locations we operate. We expect that these costs and investments will continue to increase as we continue to grow our business. We also intend to invest in maintaining our high level of member service and support, which we consider critical to our continued success. We also expect to incur additional general and administrative expenses as a result of our growth. These expenditures will make it more difficult for us to achieve profitability, and we cannot predict whether we will achieve profitability for the foreseeable future. Although we do not currently believe our net loss will increase as a percentage of revenue in the long term, we believe that our net loss may increase as a percentage of revenue in the near term and will continue to grow on an absolute basis.

Our operating costs and other expenses may be greater than we anticipate, and our investments to make our business and our operations more efficient may not be successful. Increases in our costs, expenses and investments may reduce our margins and materially adversely affect our business, financial condition and results of operations. In addition, non-mature locations and pipeline locations may not generate revenue or cash flow comparable to those generated by our existing mature locations, and our mature locations may not be able to continue to generate existing levels of revenue or cash flow. Further, our We Company offerings, such as WeLive, WeGrow, Flatiron School and Meetup, and additional We Company offerings that we may launch or acquire in the future, may not generate meaningful revenue or cash flow. For any of these reasons, we may be unable to achieve profitability for the foreseeable future and may face challenges in growing our cash flows.

We may not be able to continue to retain existing members, most of whom enter into membership agreements with short-term commitments, or to attract new members in sufficient numbers or at sufficient rates to sustain and increase our memberships or at all.

We principally generate revenues through the sale of memberships. We have in the past experienced, and expect to continue to experience, membership agreement terminations. In many cases, our members may terminate their membership agreements with us at any time upon as little notice as one calendar month. Members may cancel their memberships for many reasons, including a perception that they do not make sufficient use of our solutions and services, that they need to reduce their expenses or that alternative work environments may provide better value or a better experience.

 

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Our results of operations could be adversely affected by declines in demand for our memberships. Demand for our memberships may be negatively affected by a number of factors, including geopolitical uncertainty, competition, cybersecurity incidents, decline in our reputation and saturation in the markets where we operate. Prevailing general and local economic conditions may also negatively affect the demand for our memberships, particularly from current and potential members that are small- and mid-sized businesses and may be disproportionately affected by adverse economic conditions.

Substantially all of our leases with our landlords are for terms that are significantly longer than the terms of our membership agreements with our members. The average length of the initial term of our U.S. leases is approximately 15 years, and our future undiscounted minimum lease cost payment obligations under signed operating and finance leases was $47.2 billion as of June 30, 2019. If we are unable to replace members who may terminate their membership agreements with us, our cash flows and ability to make payments under our lease agreements with our landlords may be adversely affected. These same factors that reduce demand for our memberships may not have the same impact on a landlord that has longer commitments from its tenants than we have from our members.

We must continually add new members both to replace departing members and to expand our current member base. We may not be able to attract new members in sufficient numbers to do so. Even if we are able to attract new members to replace departing members, these new members may not maintain the same level of involvement in our community. In addition, the revenue we generate from new members may not be as high as the revenue generated from existing members because of discounts we may offer to these new members, and we may incur marketing or other expenses, including referral fees, to attract new members, which may further offset our revenues from these new members. For these and other reasons, we could experience a decline in our revenue growth, which could adversely affect our results of operations.

An economic downturn or subsequent declines in market rents may result in increased member terminations and could adversely affect our results of operations.

While we believe that we have a durable business model in all economic cycles, there can be no assurance that this will be the case. A significant portion of our member base consists of small- and mid-sized businesses and freelancers who may be disproportionately affected by adverse economic conditions. In addition, our concentration in specific cities magnifies the risk to us of localized economic conditions in those cities or the surrounding regions. For the year ended December 31, 2018 and the six months ended June 30, 2019, we generated the majority of our revenue from locations in the United States and the United Kingdom. The majority of our revenue from locations in the United States was generated from our locations in the greater New York City, San Francisco, Los Angeles, Seattle, Washington, D.C. and Boston markets. A majority of our locations in the United Kingdom are in London. Economic downturns in these markets or other markets in which we are growing our number of locations may have a disproportionate effect on our revenue and our ability to retain members, in particular among members that are small- and mid-sized businesses, and thereby require us to expend time and resources on sales and marketing activities that may not be successful and could impair our results of operations. While our business has withstood localized recessions in various geographies, we have yet to experience a global economic downturn since founding our business. In addition, our business may be affected by generally prevailing economic conditions in the markets where we operate, which can result in a general decline in real estate activity, reduce demand for our solutions and services and exert downward pressure on our revenue.

We may not be able to successfully negotiate satisfactory arrangements in respect of spaces that we occupy, or renew or replace existing spaces on satisfactory terms or at all, any of which will necessarily constrain our ability to grow our member base.

We currently lease real estate for the majority of our locations, and we are actively pursuing management agreements and participating leases, under which the landlord pays in whole or in part for the build-out costs, and other occupancy arrangements with real estate owners. If we are unable to negotiate these lease and other arrangements on satisfactory terms, we may not be able to expand our portfolio of locations.

Our lease renewal options are typically tied to upward-only rent reviews, whereby rent for any given lease renewal term is typically equal to the greater of the rent in effect for the period immediately prior to the rent review date and the then-prevailing net effective rent in the open market. As a result, increases in rental rates in the markets in which we

 

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operate, particularly in those markets where initial terms under our leases are shorter, could adversely affect our business, financial condition, results of operations and prospects.

In addition, our ability to negotiate favorable terms to extend an expiring lease or to secure an alternate location will depend on then-prevailing conditions in the real estate market, such as overall rental cost increases, competition from other would-be tenants for desirable leased spaces and our relationships with current and prospective building owners and landlords, and may depend on other factors that are not within our control. If we are not able to renew or replace an expiring lease, we will incur significant costs related to vacating that space and redeveloping whatever alternative space we are able to find, if any. In addition, if we are forced to vacate a space, we could lose members who purchased memberships based on the design, location or other attributes of that particular space and may not be interested in the other spaces we have available.

The average length of the initial term of our U.S. leases is approximately 15 years. As we continue to expand our presence into certain international markets, including Europe, Latin America, China, Japan and the Pacific, local market practices may require us to enter into leases that have shorter initial terms, which reduces the certainty of our future obligations with respect to these locations and the continued availability of our occupied spaces at these locations.

The long-term and fixed-cost nature of our leases may limit our operating flexibility and could adversely affect our liquidity and results of operations.

We currently lease a significant majority of our locations under long-term leases that, with very limited exceptions, do not contain early termination provisions. Our obligations to landlords under these agreements extend for periods that significantly exceed the length of our membership agreements with our members, which may be terminated by our members upon as little notice as one calendar month. Our leases generally provide for fixed monthly payments that are not tied to space utilization or the size of our member base, and all of our leases contain minimum rental payment obligations. As a result, if members at a particular space terminate their membership agreements with us and we are not able to replace these departing members, our lease cost expense may exceed our revenue. In addition, in an environment where cost for real estate is decreasing, we may not be able to lower our fixed monthly payments under our leases at rates commensurate with the rates at which we would be pressured to lower our monthly membership fees, which may also result in our rent expense exceeding our membership and service revenue. In any such event, we would not have the ability to reduce our rent under the lease or otherwise terminate the lease in accordance with its terms.

If we experience a prolonged reduction in revenues at a particular space, our results of operations in respect of that space would be adversely affected unless and until the lease expires or we are able to assign the lease or sublease the space to a third party. Our ability to assign a lease or sublease the space to a third party may be constrained by provisions in the lease that restrict these transfers without the prior consent of the landlord. Additionally, we could incur significant costs if we decide to assign or sublease unprofitable leases, as we may incur transaction costs associated with finding and negotiating with potential transferees, and the ultimate transferee may require upfront payments or other inducements. Moreover, our leases generally contain notice requirements in connection with certain transactions, including the reorganization transactions or the incurrence of indebtedness, as well as this offering. The failure to deliver notice or satisfy the conditions related to providing such notices to our landlords and members could result in defaults under such leases. If we default under the terms of our leases and cease operations at leased spaces, we could be exposed to breach of contract and other claims, which could result in direct and indirect costs to us and could result in operational disruptions that could harm our reputation, brand and result of operations. Additionally, we are party to a variety of lease agreements and other occupancy arrangements, including management agreements and participating leases, containing a variety of contractual rights and obligations that may be subject to interpretation. Our interpretation of such contracts may be disputed by our landlords or members, which could result in litigation, damage to our reputation or contractual or other legal remedies becoming available to such landlords and members and may impact our results of operations.

While our leases are often held by special purpose entities, our consolidated financial condition and results of operations depend on the ability of our subsidiaries to perform their obligations under these leases over time. Our business, reputation, financial condition and results of operations depend on our subsidiaries’ ongoing compliance with their leases. We may determine that it is necessary to fund the lease payments of our subsidiaries beyond the terms of

 

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our limited parent guarantees (if applicable), in which case any difficulty of our subsidiaries in performing their obligations under our leases could affect our liquidity. In addition, we provide credit support in respect of our leases in the form of letters of credit, cash security deposits and surety bonds. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Lease Obligations”. If our subsidiaries were to default under their leases, the applicable landlords could draw under the letters of credit or demand payment under the surety bonds, which could adversely affect our financial condition and liquidity. In addition, under our surety bonds, the applicable surety has the right to request collateral, including cash collateral or letters of credit, at any time the surety bonds are outstanding. We are also pursuing strategic alternatives to pure leasing arrangements, including management agreements, participating leases and other occupancy arrangements with respect to spaces. Some of our agreements contain penalties that are payable in the event we terminate the arrangement. In addition, we have limited experience to date with these types of transactions, and we may not be able to successfully complete additional transactions on commercially reasonable terms or at all.

We have engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations.

We have entered into a number of transactions with related parties, including our significant stockholders, directors and executive officers and other employees. For example, we have entered into several transactions with our Co-Founder and Chief Executive Officer, Adam Neumann, including leases with landlord entities in which Adam has or had a significant ownership interest. We have similarly entered into leases with landlord entities in which other members of our board of directors have a significant ownership interest, such as through ARK (as defined in “Business—Our Organizational Structure—ARK”). See “Certain Relationships and Related Party Transactions”. We may in the future enter into additional transactions with entities in which members of our board of directors and other related parties hold ownership interests.

Transactions with a landlord entity in which related parties hold ownership interests present potential for conflicts of interest, as the interests of the landlord entity and its shareholders may not align with the interests of our stockholders with respect to the negotiation of, and certain other matters related to, our lease with that landlord entity. For example, conflicts may arise in connection with decisions regarding the structure and terms of the lease, tenant improvement allowances or termination provisions. Conflicts of interest may also arise in connection with the exercise of contractual remedies under these leases, such as the treatment of events of default.

Our leases with landlords generally provide that, if the landlord declines to reimburse us for buildout expenses or other tenant improvement allowances for which we have the right to be reimbursed under the relevant lease, we may apply such receivables as an offset to our related rental obligations on those impacted leases. Certain of our leases with related parties, including those with landlord entities in which Adam holds a significant ownership interest, provide for tenant improvement allowances. If any of these entities declined to reimburse us for buildout expenses to which we were entitled under the relevant lease, we expect that we would apply such receivables as an offset to our related rental obligations on those impacted leases.

Pursuant to our related party transactions policy, all additional material related party transactions that we enter into require either (i) the unanimous consent of our audit committee or (ii) the approval of a majority of the independent members of our board of directors who are disinterested with respect to such related party transaction. See “Certain Relationships and Related Party Transactions—Policies and Procedures for Related Party Transactions”. Nevertheless, we may have achieved more favorable terms if such transactions had not been entered into with related parties and these transactions, individually or in the aggregate, may have an adverse effect on our business and results of operations or may result in government enforcement actions or other litigation.

A significant part of our international growth strategy and international operations will be conducted through joint ventures, and disputes with our partners may adversely affect our interest in these joint ventures.

Our international growth strategy has included entering into joint ventures in non-U.S. jurisdictions, such as in China, Japan and the broader Pacific region. Our success in these regions therefore depends on third parties whose actions we cannot control. Although in the case of certain of these joint ventures we have the right to appoint a majority of the members of the board of directors, there are many significant matters for which we require the consent of our partners in these joint ventures. Our partners in these joint ventures may have interests that are different from ours, and we may disagree with our partners as to the resolution of a particular issue to come before the joint venture or as to the

 

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management or conduct of the business of the joint venture in general. In addition, in connection with these joint ventures and other strategic partnerships, we have entered into certain agreements that provide our partners with exclusivity or other preemptive rights that may limit our ability to pursue business opportunities in the manner that we desire. For instance, with respect to each of ChinaCo, JapanCo and PacificCo (each as defined and described under “Business—Our Organizational Structure” and “Certain Relationships and Related Party Transactions—Regional Joint Ventures and Strategic Partnerships”), we have agreed to conduct all or an agreed portion of our business through the relevant joint venture. We may not be able to resolve any dispute relating to our business, operations or management of the relevant joint venture, which could have a material adverse effect on our interest in the joint venture or the business of the joint venture in general.

Some of the counterparty risks we face with respect to our members are heightened in the case of enterprise members.

Enterprise members, which often sign membership agreements with longer terms and for a greater number of memberships than our other members, accounted for 32% and 38% of our total membership and service revenue for the year ended December 31, 2018 and the six months ended June 30, 2019, respectively. Memberships attributable to enterprise members generally account for a high proportion of our revenue at a particular location, and some of our locations are occupied by just one enterprise member. A default by an enterprise member under its agreement with us could cause a significant reduction in the operating cash flow generated by the location where that enterprise member is situated. We would also incur certain costs following an unexpected vacancy by an enterprise member. The greater amount of available space generally occupied by any enterprise member relative to our other members means that the time and effort required to execute a definitive agreement is greater than the time and effort required to execute membership agreements with individuals or small- or mid-sized businesses. In addition, in some instances, we offer configured solutions that require us to customize the workspace to the specific needs and brand aesthetics of the enterprise member, which may increase our build-out costs and our net capex per workstation added. If enterprise members were to delay commencement of their membership agreements, fail to make membership fee payments when due, declare bankruptcy or otherwise default on their obligations to us, we may be forced to terminate their membership agreements with us, which could result in sunk costs and transaction costs that are difficult or impossible for us to recover.

We are exposed to risks associated with the development and construction of the spaces we occupy.

Opening new locations subjects us to risks that are associated with development projects in general, such as delays in construction, contract disputes and claims, and fines or penalties levied by government authorities relating to our construction activities. We may also experience delays opening a new location as a result of delays by the building owners or landlords in completing their base building work or as a result of our inability to obtain, or delays in our obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. We seek to open new locations on the first day of a month and delays, even if the delay only lasts a few days, can cause us to defer opening a new location by a full month. Failure to open a location on schedule may damage our reputation and brand and may also cause us to incur expenses in order to rent and provide temporary space for our members or to provide those members with discounted membership fees.

In developing our spaces, we generally rely on the continued availability and satisfactory performance of unaffiliated third-party general contractors and subcontractors to perform the actual construction work and, in many cases, to select and obtain certain building materials, including in some cases from sole-source suppliers of such materials. As a result, the timing and quality of the development of our occupied spaces depends on the performance of these third parties on our behalf.

We do not have long-term contractual commitments with general contractors, subcontractors or materials suppliers. The prices we pay for the labor or materials provided by these third parties, or other construction-related costs, could unexpectedly increase, which could have an adverse effect on the viability of the projects we pursue and on our results of operations and liquidity. Skilled parties and high-quality materials may not continue to be available at reasonable rates in the markets in which we pursue our construction activities.

The people we engage in connection with a construction project are subject to the usual hazards associated with providing construction and related services on construction project sites, which can cause personal injury and loss of

 

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life, damage to or destruction of property, plant and equipment, and environmental damage. Our insurance coverage may be inadequate in scope or coverage amount to fully compensate us for any losses we may incur arising from any such events at a construction site we operate or oversee. In some cases, general contractors and their subcontractors may use improper construction practices or defective materials. Improper construction practices or defective materials can result in the need to perform extensive repairs to our spaces, loss of revenue during the repairs and, potentially, personal injury or death. We also can suffer damage to our reputation, and may be exposed to possible liability, if these third parties fail to comply with applicable laws.

Supply chain interruptions may increase our costs or reduce our revenues.

We depend on the effectiveness of our supply chain management systems to ensure reliable and sufficient supply, on reasonably favorable terms, of materials used in our construction and development and operating activities, such as furniture, lighting, millwork, wood flooring, security equipment and consumables. The materials we purchase and use in the ordinary course of our business are sourced from a wide variety of suppliers around the world. Disruptions in the supply chain may result from weather-related events, natural disasters, trade restrictions, tariffs, border controls, acts of war, terrorist attacks, third-party strikes or ineffective cross dock operations, work stoppages or slowdowns, shipping capacity constraints, supply or shipping interruptions or other factors beyond our control. In the event of disruptions in our existing supply chain, the labor and materials we rely on in the ordinary course of our business may not be available at reasonable rates or at all. In some cases, we may rely on a single source for procurement of construction materials or other supplies in a given region. Any disruption in the supply of certain materials could disrupt operations at our existing locations or significantly delay our opening of a new location, which may cause harm to our reputation and results of operations.

We incur costs relating to the maintenance, refurbishment and remediation of our spaces.

The terms of our leases generally require that we ensure that the spaces we occupy are kept in good repair throughout the term of the lease. The terms of our leases may also require that we return the space to the landlord at the end of the lease term in the same condition it was delivered to us, which, in such instances, will require removing all fixtures and improvements to the space. The costs associated with this maintenance, removal and repair work may be significant.

We also anticipate that we will be required to periodically refurbish our spaces to keep pace with the changing needs of our members. Extensive refurbishments may be more costly and time-consuming than we expect and may adversely affect our results of operations and financial condition. Our member experience may be adversely affected if extensive refurbishments disrupt our operations at our locations.

Our growth and success depends on our ability to maintain the value and reputation of our brand and the success of our strategic partnerships.

Our brand is integral to our business as well as to the implementation of our strategies for expanding our business. In 2019, we launched a global rebranding effort that may affect our ability to attract and retain members, which may have a material adverse effect on our business or results of operations.

Maintaining, promoting and positioning our brand will depend largely on our ability to provide a consistently high quality member experience and on our marketing and community-building efforts. To the extent our locations, workspace solutions or product or service offerings are perceived to be of low quality or otherwise are not compelling to new and existing members, our ability to maintain a positive brand reputation may be adversely affected.

In addition, failure by third parties on whom we rely but whose actions we cannot control, such as general contractors and construction managers who oversee our construction activities or facilities management staff, to uphold a high standard of workmanship, ethics, conduct and legal compliance could subject us to reputational harm based on their association with us and our brand. As we pursue our growth strategies of entering into joint ventures, revenue-sharing arrangements and other partnerships with local partners in non-U.S. jurisdictions, such as through ChinaCo, JapanCo, PacificCo and IndiaCo, we become increasingly dependent on third parties whose actions we cannot control.

We receive a high degree of media coverage domestically and internationally and we believe that much of our reputation depends on word-of-mouth and other non-paid sources of opinion, including on the internet. Unfavorable

 

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publicity or consumer perception or experience of our solutions, practices, products or services could adversely affect our reputation, resulting in difficulties in attracting and retaining members and business partners, and limiting the success of our community-building efforts and the range of solutions, products and services we are able to offer.

Historically, many of our members have signed up for memberships because of positive word-of-mouth referrals by existing members, which has reduced our need to rely on traditional marketing efforts. To the extent that we are unable to maintain a positive brand reputation organically, we may need to rely more heavily on traditional marketing efforts to attract new members, which would increase our sales and marketing expenses both in absolute terms and as a percentage of our revenue.

If our employees, members of our community or other people who enter our spaces act badly, our business and our reputation may be harmed.

Our emphasis on our mission and values makes our reputation particularly sensitive to allegations of violations of community rules or applicable laws by our members, employees or other people who enter our spaces. While we verify the identity of any individual interested in joining our community, we do not conduct extensive background checks or otherwise extensively vet potential members prior to entering into membership agreements that provide them or their employees access to our locations. If our members, employees or other people violate our policies or engage in illegal or unethical behavior, or are perceived to do so, we may be the subject of negative publicity and our reputation may be harmed. These bad acts may also encourage existing members to leave our locations and make it more difficult for us to recruit new members at that location, which would adversely impact our results of operations for the affected location.

If our pricing and related promotional and marketing plans are not effective, our business and prospects may be negatively affected.

Our business and prospects depend on the impact of pricing and related promotional and marketing plans and our ability to adjust these plans to respond quickly to economic and competitive conditions. If our pricing and related promotional and marketing plans are not successful, or are not as successful as those of competitors, our revenue, membership base and market share could decrease, thereby adversely impacting our results of operations.

We may make decisions consistent with our mission that may reduce our short- or medium-term operating results.

Our mission is integral to everything we do, and many of our strategic and investment decisions are geared toward improving the experience of our members and the attractiveness of our community. While we believe that pursuing these goals will produce benefits to our business in the long-term, these decisions may adversely impact our short- or medium-term operating results and the long-term benefits that we expect to result from these initiatives may not materialize within the timeframe we expect or at all, which could harm our business and financial results.

We may be unable to adequately protect or prevent unauthorized use of our trademarks and other proprietary rights and we may be prevented by third parties from using or registering our trademarks or other intellectual property.

To protect our trademarks and other proprietary rights, we rely and expect to continue to rely on a combination of protective agreements with our employees and third parties (including local or other strategic partners we may do business with), physical and electronic security measures and trademark, copyright, patent and trade secret protection laws. In certain jurisdictions, rights in trademarks are derived from registration of the trademark. We may not have trademark rights in a jurisdiction where our trademarks are not registered, including with respect to any new brands and existing brands associated with new offerings. We have obtained a strategic set of trademark, copyright and patent applications or registrations in the United States and other jurisdictions and have filed, and we expect to file from time to time, additional trademark, copyright and patent applications. Nevertheless, these applications may not proceed to registration or issuance and in any event may not be comprehensive (particularly with respect to non-U.S. jurisdictions), third parties may challenge any trademarks, copyrights or patents issued to or held by us, the agreements (including license agreements with local or other strategic partners) and security measures we have in place may be inadequate or otherwise fail to effectively accomplish their protective purposes, third parties may infringe or misappropriate our intellectual property rights, and we may not be successful in asserting intellectual property rights against third parties. Third parties may also take the position that we are infringing their rights, and we may not be

 

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successful in defending these claims. For example, we have received correspondence from third parties asserting potential claims of trademark infringement with respect to some of our WE names and trademarks. We dispute these assertions. Additionally, we may not be able to enforce or defend our proprietary rights or prevent infringement or misappropriation without substantial expense to us and a significant diversion of management time and attention from our business strategy.

We currently hold various domain names relating to our brand, most importantly wework.com, we.co, wegrow.com and welive.com, as well as several other @we and @wework social media handles. Competitors and others could attempt to capitalize on our brand recognition by using domain names or social media handles similar to those we hold. We may be unable, without significant cost or at all, to maintain or protect our use of domain names and social media handles or prevent third parties from acquiring domain names or social media handles that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights in our domain names.

If the measures we have taken to protect our proprietary rights are inadequate to prevent unauthorized use or misappropriation by third parties or such rights are diminished or we are prevented from using intellectual property due to successful third-party challenges, the value of our brand and other intangible assets may be diminished and our business and results of operations may be adversely affected.

We rely on a combination of proprietary and third-party technology systems to support our business and member experience, and, if these systems experience difficulties, our business, financial condition, results of operations and prospects may be materially adversely affected.

We use a combination of proprietary technology and technology provided by third-party service providers to support our business and our member experience. For example, the WeWork app, which we developed in-house but which incorporates third-party and open source software where appropriate, connects local communities and develops and deepens connections among our members, both at particular spaces and across our global network.

We also use technology of third-party service providers to help manage the daily operations of our business. For example, we rely on our own internal systems as well as those of third-party service providers to process membership payments and other payments from our members.

To the extent we experience difficulties in the operation of technologies and systems we use to manage the daily operations of our business or that we make available to our members, our ability to operate our business, retain existing members and attract new members may be impaired. We may not be able to attract and retain sufficiently skilled and experienced technical or operations personnel and third-party contractors to operate and maintain these technologies and systems, and our current product and service offerings may not continue to be, and new product and service offerings may not be, supported by the applicable third-party service providers on commercially reasonable terms or at all.

Moreover, we may be subject to claims by third parties who maintain that our service providers’ technology infringes the third party’s intellectual property rights. Although our agreements with our third-party service providers often contain indemnities in our favor with respect to these eventualities, we may not be indemnified for these claims or we may not be successful in obtaining indemnification to which we are entitled.

Also, any harm to our members’ personal computers or other devices caused by our software, such as the WeWork app, or other sources of harm, such as hackers or computer viruses, could have an adverse effect on the member experience, our reputation and our results of operations and financial condition.

If our proprietary information and/or data we collect and store, particularly billing and personal data, were to be accessed by unauthorized persons, our reputation, competitive advantage and relationships with our members could be harmed and our business could be materially adversely affected.

We generate significant amounts of proprietary, sensitive and otherwise confidential information relating to our business and operations, and we collect, store and process confidential and personal data regarding our members, including member names and billing data. Our proprietary information and data is maintained on our own systems as well as the systems of third-party service providers.

 

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Similar to other companies, our information technology systems face the threat of cyber-attacks, such as security breaches, phishing scams, malware and denial-of-service attacks. Our systems or the systems of our third-party service providers could experience unauthorized intrusions or inadvertent data breaches, which could result in the exposure or destruction of our proprietary information and/or members’ data.

Because techniques used to obtain unauthorized access to systems or sabotage systems change frequently and may not be known until launched against us or our service providers, we and they may be unable to anticipate these attacks or implement adequate preventative measures. In addition, any party who is able to illicitly obtain identification and password credentials could potentially gain unauthorized access to our systems or the systems of our third-party service providers. If any such event occurs, we may have to spend significant capital and other resources to notify affected individuals, regulators and others as required under applicable law, mitigate the impact of the event and develop and implement protections to prevent future events of that nature from occurring. From time to time, employees make mistakes with respect to security policies that are not always immediately detected by compliance policies and procedures. These can include errors in software implementation or a failure to follow protocols and patch systems. Employee errors, even if promptly discovered and remediated, may disrupt operations or result in unauthorized disclosure of confidential information. We have experienced unauthorized breaches of our systems prior to this offering, which we believe did not have a material effect on our business.

If a data security incident occurs, or is perceived to occur, we may be the subject of negative publicity and the perception of the effectiveness of our security measures and our reputation may be harmed, which could damage our relationships and result in the loss of existing or potential members and adversely affect our results of operations and financial condition. In addition, even if there is no compromise of member information, we could incur significant regulatory fines, be the subject of litigation or face other claims. In addition, our insurance coverage may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related data and system incidents.

Although we expect to become Payment Card Industry Data Security Standard (PCI DSS) compliant in 2019, our practices with respect to this type of information are evolving and do not yet fully comply with that industry standard and other applicable guidelines. Additionally, if new operating rules or interpretations of existing rules are adopted regarding the processing of credit cards that we are unable to comply with, we could lose the ability to give members the option to make electronic payments, which could result in the loss of existing or potential members and adversely affect our business.

Our reputation, competitive advantage, financial position and relationships with our members could be materially harmed if we are unable to comply with complex and evolving data protection laws and regulations, and the costs and resources required to achieve compliance may have a materially adverse impact on our business.

The collection, protection and use of personal data are governed by privacy laws and regulations enacted in the United States, Europe, Asia and other jurisdictions around the world in which we operate. These laws and regulations continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with applicable privacy laws and regulations may increase our costs of doing business and adversely impact our ability to conduct our business and market our solutions, products and services to our members and potential members.

For example, we are subject to the European Union’s General Data Protection Regulation (“GDPR”) in a number of jurisdictions. The GDPR imposes significant obligations, and compliance with these obligations depends in part on how particular regulators apply and interpret them. If we fail to comply with the GDPR, or if regulators assert we have failed to comply with the GDPR, it may lead to regulatory enforcement actions, which can result in monetary penalties of up to 4% of worldwide revenue, private lawsuits and/or reputational damage. Further, any U.K. exit from the European Union will increase uncertainty regarding applicable laws and regulations pending more clarity on the terms of that exit.

Additionally, in June 2018, California passed the California Consumer Privacy Act (“CCPA”), which provides new data privacy rights for consumers and new operational requirements for companies, effective in 2020. The CCPA creates a private right of action that could lead to consumer class actions and other litigation against us, with statutory damages of up to $750 per violation. The California Attorney General will also maintain authority to enforce the CCPA and will be permitted to seek civil penalties for intentional violations of the CCPA of up to $7,500 per violation. Other U.S. states and the U.S. Congress are in the process of considering legislation similar to California’s legislation. If we fail to comply

 

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with the CCPA or other federal or state data protection laws, or if regulators or plaintiffs assert we have failed to comply with them, it may lead to regulatory enforcement actions, private lawsuits and/or reputational damage.

We are also subject to China’s Cybersecurity Law, which took effect in 2017. China’s Cybersecurity Law and its implementing regulations lay out requirements on cybersecurity, data localization and data protection, subjecting many previously under-regulated or unregulated activities to government scrutiny under provisions that have not yet been subject to public interpretation by enforcement authorities. Likewise, in Canada we are subject to Canada’s Personal Information and Protection of Electronic Documents Act (“PIPEDA”). PIPEDA provides Canadian residents with privacy protections and sets out rules for how companies may collect, use and disclose personal information in the course of commercial activities. The costs of compliance with, and other burdens imposed by, these and other international data privacy and security laws may limit the use and adoption of our solutions, products and services and could have a materially adverse impact on our business. Any failure or perceived failure by us or third-party service providers to comply with international data privacy and security laws may lead to regulatory enforcement actions, fines, private lawsuits or reputational damage.

Our future success depends in large part on the continued service of Adam Neumann, our Co-Founder and Chief Executive Officer, which cannot be ensured or guaranteed.

Adam Neumann, our Co-Founder and Chief Executive Officer, is critical to our operations. Adam has been key to setting our vision, strategic direction and execution priorities. We have no employment agreement in place with Adam, and there can be no assurance that Adam will continue to work for us or serve our interests in any capacity. If Adam does not continue to serve as our Chief Executive Officer, it could have a material adverse effect on our business.

We plan to continue expanding our business into markets outside the United States, which will subject us to risks associated with operating in foreign jurisdictions.

Expanding our operations into markets outside the United States has been an important part of our growth strategy. For the six months ended June 30, 2019, 56% of our revenue was attributable to our operations in the United States and 44% of our revenue was attributable to our operations elsewhere, compared with 62% and 38% for the six months ended June 30, 2018. We expect to continue to expand our operations in markets outside the United States in the coming years.

While we have already expanded our operations to a number of non-U.S. markets, the success of our expansion into additional non-U.S. markets will depend on our ability to attract local members. The solutions, products and services we offer may not appeal to potential members in all markets in the same way it appeals to our members in markets where we currently operate. In addition, local competitors may have a substantial competitive advantage over us in a given market because of their greater understanding of, and focus on, individuals and organizations in that market, as well as their more established local infrastructure and brands. We may also be unable to hire, train, retain and manage the personnel we require in order to manage our international operations effectively, on a timely basis or at all, which may limit our growth in these markets. Further, we may experience variability in the terms of our leases (including rent per square foot) and in our capital expenditures as we move into new markets.

Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that may be different from and incremental to those that we face in the United States, including:

 

   

the need to adapt the design and features of our locations and products and services to accommodate specific cultural norms and language differences;

 

   

difficulties in understanding and complying with local laws and regulations in foreign jurisdictions, including local labor laws, tax laws, environmental regulations and rules and regulations related to occupancy of our locations;

 

   

varying local building codes and regulations relating to building design, construction, safety, environmental protection and related matters;

 

   

significant reliance on third parties with whom we may engage in joint ventures, strategic alliances or ordinary course contracting relationships whose interests and incentives may be adverse to or different from ours or may be unknown to us;

 

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varying laws, rules, regulations and practices regarding protection and enforcement of intellectual property rights, including trademarks;

 

   

laws and regulations regarding consumer and data protection and security, and encryption that may be more restrictive than comparable laws and regulations in the United States;

 

   

corrupt or unethical practices in foreign jurisdictions that may subject us to compliance costs, including competitive disadvantages, or exposure under applicable anti-corruption and anti-bribery laws;

 

   

compliance with applicable export controls and economic sanctions, such as those administered by the United States Office of Foreign Assets Control;

 

   

fluctuations in currency exchange rates and compliance with foreign exchange controls and limitations on repatriation of funds; and

 

   

unpredictable disruptions as a result of security threats or political or social unrest and economic instability.

Finally, continued expansion in markets outside the United States will require significant financial and other investments. These investments include property sourcing and leasing, marketing to attract and retain new members, developing localized infrastructure and services, developing relationships with local partners and third-party service providers, further developing corporate capabilities able to support operations in multiple countries, and potentially entering into strategic transactions with or even acquiring companies based outside the United States and integrating those companies with our existing operations. If we continue to invest substantial time and resources to expand our operations outside the United States, but cannot manage these risks effectively, the costs of doing business in those markets, including the investment of management attention, may be prohibitive, or our expenses may increase disproportionately to the revenue generated in those markets.

As we continue to grow our global platform in new markets, certain metrics may be impacted by the geographic mix of our platform. For example, average revenue per WeWork membership has declined as we have expanded internationally into lower-priced markets, which is a trend we expect could continue in the near-term. Also, our overall contribution margin percentage may decline as certain lower margin markets, including markets with a larger target member population such as China, Latin America and Southeast Asia become a larger portion of our portfolio. We currently expect our contribution margin percentage to decline slightly in the second half of 2019 relative to the first half of 2019 due to an increase in the percentage of our locations in developing markets, including China, and an increase in member technology expenses as we continue to invest in improving our overall member experience. Our contribution margin metrics may also be impacted by the speed at which we can open and fill locations and stabilize occupancy at those locations as well as the average revenue per WeWork membership that we generate.

We face risks arising from strategic transactions such as acquisitions and investments that we evaluate, pursue and undertake.

From time to time, we evaluate potential strategic acquisition or investment opportunities, and from time to time we pursue and undertake certain of those opportunities. We have expanded rapidly, including through acquisitions of companies engaged in a variety of businesses, including Meetup (an online platform that brings people together offline) and Flatiron School (a software programming education platform). We plan to continue to pursue and complete acquisitions or investments, some of which may be material and may not create the value that we expect. We also plan to continue or accelerate investments in real estate vehicles, including as we grow our ARK real estate acquisition and management platform.

Any transactions that we enter into could be material to our financial condition and results of operations. We have limited experience in completing and integrating major acquisitions. The process of acquiring and integrating another company or technology could create unforeseen operating difficulties and expenditures and could entail unforeseen liabilities that are not recoverable under the relevant transaction agreements or otherwise.

The integration of acquisitions involves a number of significant risks which may include but are not limited to:

 

   

the assimilation and retention of personnel, including management personnel, in the acquired businesses;

 

   

accounting, tax, regulatory and compliance issues that could arise;

 

   

expenses and difficulties in the transition and integration of operations and systems;

 

 

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unanticipated expenses incurred or charges to earnings based on unknown circumstances or liabilities;

 

   

failure to realize the synergies and other benefits we expect from the acquisition, at the pace we anticipate or at all;

 

   

general economic conditions in the markets in which the acquired business operates; and

 

   

difficulties encountered in conducting business in markets where we have limited experience and expertise.

If we are unable to successfully complete and integrate our strategic acquisitions in a timely manner, our business, growth strategies and results of operations could be adversely affected.

We have entered into certain agreements that may limit our ability to directly acquire ownership interests in properties, and our control and joint ownership of certain properties with third-party investors may create conflicts of interest.

We hold an ownership interest in ARK, our real estate acquisition and management platform, through our majority ownership of the general partner and manager entities that manage the activities of real estate acquisition vehicles managed or sponsored by ARK. In connection with the formation of ARK, we agreed that ARK would be the exclusive general partner and investment manager for any real estate acquisition vehicles managed by, or otherwise affiliated with, The We Company and its controlled affiliates and associated persons. We also agreed to make commercial real estate and other real estate-related investment opportunities that meet ARK’s mandate available to ARK on a first-look basis, with certain limited exceptions. Because of these requirements, which are in effect at least until there are no real estate acquisition vehicles managed or sponsored by ARK that are actively deploying capital, we may be required to acquire ownership interests in properties through ARK that we otherwise could have acquired through one of our operating subsidiaries, which may prevent us from realizing the full benefit of certain attractive real estate opportunities.

Additionally, ARK focuses on acquiring, developing and managing properties that ARK believes would benefit from our occupancy or involvement, and we expect a subsidiary of The We Company to occupy or be involved with a meaningful portion of the properties acquired by real estate acquisition vehicles managed or sponsored by ARK. Our ownership interest in ARK may create situations where our interests with respect to the exercise of ARK’s management rights in respect of its owned assets, as well as ARK’s duties to limited partners or similar members in real estate acquisition vehicles managed or sponsored by ARK, may be in conflict with our own independent economic interests as a tenant and operator of our locations. For example, conflicts may arise in connection with decisions regarding the structure and terms of the leases entered into between us and ARK, tenant improvement allowances, or guarantee or termination provisions. Conflicts of interest may also arise in connection with the exercise of contractual remedies under such leases, such as treatment of events of default.

Our ownership interest in ARK may impact our financial condition and results of operations.

ARK’s financial performance is significantly correlated with the activities of real estate acquisition vehicles managed or sponsored by ARK, and a significant portion of any income to ARK is expected to be received, if at all, at the end of the holding period for one or more given assets or the term of one or more given real estate acquisition vehicles. In addition, a broad range of events or circumstances could cause any real estate acquisition vehicle managed or sponsored by ARK to fail to meet its objectives. In light of the long-dated and uncertain nature of any income to ARK, ARK’s financial performance may be more variable than we expect, both from period to period and overall. Accordingly, because of our ownership interest in ARK, ARK’s performance and activities, including the nature and timing of ARK transactions, may affect the comparability of our financial condition and results of operations from period to period, in each case to the extent required to be directly included in our consolidated financial statements in accordance with GAAP. For additional information regarding the ownership structure of ARK, see “Business—Our Organizational Structure—ARK”.

 

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Additionally, although we do not generally expect this to be the case, investments through real estate acquisition vehicles managed or sponsored by ARK may require that we directly incur or guarantee debt, which we expect will typically be through loans secured by assets or properties that ARK acquires. For example, an entity in which we hold an interest has incurred a secured loan to purchase certain property in New York City, which we have leased from that entity. The secured loan is recourse to The We Company in certain limited circumstances, and The We Company also provided performance guarantees relating to the development of that property. See “Description of Indebtedness—424 Fifth Venture Loans”.

Our business will suffer if we are unable to hire, develop, retain and motivate highly skilled and dedicated team members to support our mission.

We strive to attract and motivate team members who share a dedication to the member community and our vision, but we may not be successful in doing so. Our success depends on our ability to identify, hire, develop, motivate, retain and integrate highly qualified personnel dedicated to our mission for all areas of our business. Our U.S.-based team members, including most of our senior management, work for us on an at-will basis. Other companies, including competitors, may be successful in recruiting and hiring team members away from us, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms or at all. If we are unable to effectively manage our hiring needs or successfully integrate new hires, our employee morale, productivity and retention could suffer, which could adversely affect our business, financial condition and results of operations. Additionally, the success of each of our new and existing locations depends on our ability to hire and retain dedicated community managers and community team members. As we enter new geographic markets and launch new solutions, products and services, we may experience difficulty attracting employees in the areas we require who are dedicated to our mission.

We may not be able to compete effectively with others.

Our WeWork space-as-a-service offering has few barriers to entry. While we consider ourselves to be a leader in the space-as-a-service sector, with core competencies in finding, building, filling and running new locations, our reported success may encourage people to launch competing flexible workspace offerings. If new companies decide to launch competing solutions in the markets in which we operate, or if any existing competitors obtain a large-scale capital investment, we may face increased competition for members.

In addition, some of the business services we offer or plan to offer are provided by one or more large, national or international companies, as well as by regional and local companies of varying sizes and resources, some of which may have accumulated substantial goodwill in their markets. Some of our competitors may also be better capitalized than we are, have access to better lease terms than we do, have operations in more jurisdictions than we do or be able or willing to provide services at a lower price than we are. Our inability to compete effectively in growing or maintaining our membership base could hinder our growth or adversely impact our operating results.

Our limited operating history and evolving business make it difficult to evaluate our current business and future prospects.

Our limited operating history and the growth of our business make it difficult to accurately assess our future prospects. It may not be possible to discern fully the economic and other business trends that we are subject to. Elements of our business strategy are new and subject to ongoing development as our operations mature. In addition, it may be difficult to evaluate our business because there are few other companies that offer the same or a similar range of solutions, products and services as we do.

Certain of the measures we use to evaluate our financial and operating performance are subject to inherent challenges in measurement and may be impacted by subjective determinations and not necessarily by changes in our business.

We track certain operational metrics, including key performance indicators such as memberships, workstation capacity and enterprise membership percentage, with internal systems and tools that are not independently verified by any third party. Certain of our operational metrics are also based on assumptions or estimates of future events. In particular, the tenant improvement reimbursement amounts used to calculate net capex per workstation added represent the full

 

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tenant improvement allowances in our leases with landlords, rather than the amounts we have collected from landlords or submitted for reimbursement. Similarly, the number of workstations in our open locations, pre-open locations and pipeline locations is compiled from a number of data sources depending on the phase of the location within the lifecycle that we attribute to our locations. For open locations, workstation capacity for shared workspace offerings, which account for a subset of our standard workspace solutions, is estimated on a location-by-location basis by our community managers based on demand and the characteristics and distinct local personality of the relevant community, and a community manager at a given location may choose to change workstation capacity at any time. Meanwhile, for pre-opening and pipeline locations, workstation capacity is estimated by our real estate and design teams based on our building information modeling software, and includes estimated workstation capacity for locations that are the subject of a draft term sheet or lease that may not result in a signed lease agreement or an open location.

While the metrics presented in this prospectus are based on what we believe to be reasonable assumptions and estimates, our internal systems and tools have a number of limitations, and our methodologies for tracking these metrics may change over time. In addition, limitations or errors with respect to how we measure data or with respect to the data that we measure may affect our understanding of certain details of our business, which could affect our long-term strategies. If the internal systems and tools we use to track these metrics understate or overstate performance or contain algorithmic or other technical errors, the data we report may not be accurate. If investors do not perceive our operating metrics to be accurate, or if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed, and our results of operations and financial condition could be adversely affected.

Our committed revenue backlog and run-rate revenue may not be indicative of future revenues and target contribution margin percentage may not be indicative of our future contribution margin.

Committed revenue backlog as of a given date represents total non-cancelable contractual commitments, net of discounts, remaining under agreements entered into as of such date, which we expect will be recognized as revenue subsequent to such date. For membership agreements with month-to-month commitments commencing in a future month, the contractual commitment recorded within committed revenue backlog is one month of revenue. Existing month-to-month membership agreements are not included in the calculation of committed revenue backlog. Almost all of our committed revenue backlog is attributable to membership agreements relating to our WeWork space-as-a-service offering. Committed revenue backlog is not necessarily indicative of future earnings or revenues and we may not ultimately realize our committed revenue backlog.

Run-rate revenue for a given period represents our revenue recognized in accordance with GAAP for the last month of such period multiplied by 12. We view run-rate revenue as an operating metric, and it is not intended to be a replacement or forecast of revenue in accordance with GAAP. Run-rate revenue is not necessarily indicative of future revenues, and we may not ultimately realize levels of revenue in line with or above our run-rate revenue.

Our target contribution margin percentage for any given location over the course of a 15-year lease is 30%. Since the impact of straight-lining of lease costs nets to zero over the lifetime of a lease, our target contribution margin reflects zero impact from straight-lining of lease costs. We view this as an internal target. Target contribution margin percentage is not intended to be a forecast of the actual contribution margin percentage that we expect to achieve on a consolidated basis. We may not realize a contribution margin percentage, for either a given location or on a consolidated basis, in line with our target contribution margin percentage presented in this prospectus.

If our employees were to engage in a strike or other work stoppage or interruption, our business, results of operations, financial condition and liquidity could be materially adversely affected.

Although we believe that our relations with our employees are good, if disputes with our employees arise, or if our workers engage in a strike or other work stoppage or interruption, we could experience a significant disruption of, or inefficiencies in, our operations or incur higher labor costs, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, some of our employees outside of the United States are represented or may seek to be represented by a labor union or workers’ council.

 

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We may be subject to litigation and other legal proceedings which could adversely affect our business, financial condition and results of operations.

We have in the past been, are currently and may in the future become involved in private actions, class actions, investigations and various other legal proceedings, including from members, employees, commercial partners, third-party license holders, competitors and government agencies, among others. With respect to employees, we face and could in the future face a wide variety of claims, including discrimination (for example, based on gender, age, race or religious affiliation), sexual harassment, privacy, labor and employment, ERISA and disability claims. Often these cases raise complex factual and legal issues, and the result of any such litigation, investigations and legal proceedings are inherently unpredictable. Claims against us, whether meritorious or not, could require significant amounts of management time and corporate resources to defend, could result in significant media coverage and negative publicity, and could be harmful to our reputation and our brand. If any of these legal proceedings were to be determined adversely to us, or if we were to enter into settlement arrangements, we could be exposed to monetary damages or be forced to change the way in which we operate our business, which could have an adverse effect on our business, financial condition, results of operations and cash flows.

Our business could be adversely affected by natural disasters, public health crises, political crises or other unexpected events for which we may not be sufficiently insured.

Natural disasters and other adverse weather and climate conditions, public health crises, political crises, terrorist attacks, war and other political instability or other unexpected events could disrupt our operations, damage one or more of our locations, or prevent short- or long-term access to one or more of our locations. Many of our spaces are located in the vicinity of disaster zones, including flood zones in New York City and potentially active earthquake faults in the San Francisco Bay Area and Mexico City. Many of our locations are concentrated in metropolitan areas or located in or near prominent buildings, which may be the target of terrorist or other attacks. Although we carry comprehensive liability, fire, extended coverage and business interruption insurance with respect to all of our consolidated locations, there are certain types of losses that we do not insure against because they are either uninsurable or not insurable on commercially reasonable terms. Should an uninsured event or a loss in excess of our insured limits occur, we could lose some or all of the capital invested in, and anticipated future revenues from, the affected locations, and we may nevertheless continue to be subject to obligations related to those locations.

Economic and political instability and potential unfavorable changes in laws and regulations in international markets could adversely affect our results of operations and financial condition.

Our business may be affected by political instability and potential unfavorable changes in laws and regulations in international markets in which we operate. For example, the United Kingdom’s anticipated exit from the European Union, known as “Brexit,” could impact our operations in the United Kingdom in the short term through volatility in the British Pound as the United Kingdom negotiates its anticipated exit from the European Union. In the longer term, any impact from Brexit on our operations in the United Kingdom will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Additionally, there are concerns regarding potential changes in the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, government regulations and tariffs. It remains unclear how the United States or foreign governments will act with respect to tariffs, international trade agreements and policies. The implementation by China or other countries of higher tariffs, capital controls, new adverse trade policies or other barriers to entry could have an adverse impact on our business, financial condition and results of operations.

Risks Relating to Our Financial Condition

Our indebtedness and other obligations could adversely affect our financial condition and liquidity.

Concurrently with the closing of this offering, we expect to enter into a new senior secured credit facility (the “2019 Credit Facility”) providing for senior secured financing of up to $6.0 billion, consisting of a three-year letter of credit reimbursement facility (the “2019 Letter of Credit Facility”) in the aggregate amount of $2.0 billion and a delayed draw term loan facility (the “Delayed Draw Term Facility”) in the aggregate principal amount of up to $4.0 billion. Subject to compliance with the covenants in our other debt agreements, to the extent then applicable, and the satisfaction of certain conditions, the Delayed Draw Term Facility will be available from the closing date of the 2019 Credit Facility

 

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until June 30, 2022. However, (1) prior to receipt of financial statements for the three months ended June 30, 2020, only $1.0 billion of the Delayed Draw Term Facility will be available, (2) upon receipt of financial statements for the three months ended June 30, 2020, an additional $1.5 billion of the Delayed Draw Term Facility will become available and (3) upon receipt of financial statements for the year ended December 31, 2020, the remaining $1.5 billion of the Delayed Draw Term Facility will become available. Currently, the debt and lien covenants under the indenture governing the senior notes would restrict our ability to draw the second and third tranches of the Delayed Draw Term Facility described above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Debt Financing Transactions”.

In addition, we had existing consolidated long-term debt of $1,342.7 million as of June 30, 2019, including $669.0 million outstanding principal amount of our 7.875% senior notes due 2025 (the “senior notes”) and amounts under the 424 Fifth Venture Loans described in “Description of Indebtedness”, which loans are obligations of the 424 Fifth Venture but are recourse to us in certain limited circumstances.

Our high level of debt could have important consequences, including the following:

 

   

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements, and increasing our cost of borrowing;

 

   

requiring a substantial portion of our cash flows to be dedicated to payments on our obligations instead of for other purposes; and

 

   

increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for and reacting to changes in the industry in which we compete.

Subject to the limits contained in the indenture governing the senior notes, the credit agreement that will govern the 2019 Credit Facility and our other debt agreements and obligations, we will also be able to incur substantial additional debt, lease obligations and other obligations from time to time. If we do so, the risks related to our high level of debt could intensify.

We may not be able to generate sufficient cash to service all of our indebtedness and other obligations and may be forced to take other actions to satisfy our obligations, which may not be successful.

Our ability to make scheduled payments or refinance our obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and to pay our lease obligations, in particular if we continue to pursue rapid growth.

If our cash flows and capital resources are insufficient to fund our obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness and other obligations. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt obligations. The agreements that govern our indebtedness restrict our ability to dispose of certain assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or certain types of equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any obligations then due. See “Description of Indebtedness”.

In addition, we conduct a substantial portion of our operations through our subsidiaries. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment or otherwise. In the event that our subsidiaries are unable to generate sufficient cash flow, we may be unable to make required principal and interest payments on our indebtedness.

If we cannot make scheduled payments on our debt, we will be in default and, as a result, lenders under any of our existing and future indebtedness could declare all outstanding principal and interest to be due and payable, the lenders

 

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under our debt instruments could terminate their commitments to issue letters of credit or fund amounts under the Delayed Draw Term Facility, our secured lenders could foreclose against the assets securing such borrowings and we could be forced into bankruptcy or liquidation.

In addition, as of June 30, 2019, we had future undiscounted minimum lease cost payment obligations under signed operating and finance leases of $47.2 billion, and if we are unable to service our obligations under the lease agreements for particular properties, we may be forced to vacate those properties or pay compensatory or consequential damages to the landlord, which could adversely affect our business, reputation and prospects. See “—Risks Relating to Our Business—The long-term and fixed-cost nature of our leases may limit our operating flexibility and could adversely affect our liquidity and results of operations”.

In addition, our $2.5 billion in cash and cash equivalents as of June 30, 2019 included cash and cash equivalents of $535.8 million of our consolidated variable interest entities (“VIEs”), which will be used first to settle obligations of the VIE. Remaining assets may only be distributed to the VIEs’ owners, including us, subject to the liquidation preferences of certain noncontrolling interest holders and any other preferential distribution provisions contained within the operating agreements of the relevant VIEs. In addition to these amounts, we had restricted cash of $575.6 million as of June 30, 2019, which primarily consist of amounts provided to the applicable lenders to secure letters of credit issued under our bank facilities to support leases entered into by certain of our subsidiaries. Under the 2019 Letter of Credit Facility that we expect to enter into concurrently with the closing of this offering, we will be required to deposit cash collateral in an amount equal to the face amount of letters of credit issued under the facility. Accordingly, we expect our restricted cash supporting letters of credit to increase following the closing of this offering.

We may require additional capital, which may not be available on terms acceptable to us or at all.

We incurred net losses in the years ended December 31, 2016, 2017 and 2018 and in the six months ended June 30, 2018 and 2019, and we do not intend to achieve positive GAAP net income for the foreseeable future. As a result, we may require additional financing. Our future financing requirements will depend on many factors, including the number of new locations to be opened, our net membership retention rate, the timing and extent of spending to support the development of our platform, our ability to reduce capital expenditures, the expansion of our sales and marketing activities and potential investments in, or acquisitions of, businesses or technologies. Our ability to obtain financing will depend on, among other things, our development efforts, business plans, operating performance, investor demand and the condition of the capital markets at the time we seek financing. To the extent we use available funds or are unable to draw under our Delayed Draw Term Facility, we may need to raise additional funds, which may not be available to us on favorable terms when required, or at all. In the event that we are unable to obtain additional financing on favorable terms, our interest expense and principal repayment requirements could increase significantly, which could harm our business, revenue and financial results.

The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to changes or take certain actions.

The credit agreement governing the 2019 Credit Facility will contain, and the indenture that governs the senior notes contains, a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to incur indebtedness (including guarantee obligations), incur liens, enter into mergers or consolidations, dispose of assets, pay dividends, make acquisitions and make investments, loans and advances.

The 2019 Credit Facility will also require us to comply with certain minimum contribution margin, liquidity and net cash flow financial covenants and will require us to deposit cash collateral in an amount equal to the face amount of letters of credit issued under the facility. Although the 2019 Credit Facility will permit us to incur additional indebtedness, the 2019 Credit Facility will limit the amount of indebtedness that we can incur. In particular, the 2019 Credit Facility will require that the net cash proceeds of indebtedness under a specified asset-securitization facility basket be deposited into escrow for the benefit of the lenders under the 2019 Credit Facility or that undrawn commitments under the Delayed Draw Term Facility be cancelled in an equivalent amount, and the 2019 Credit Facility will otherwise limit additional secured indebtedness to specified fixed baskets.

These restrictions may affect our ability to grow in accordance with our strategy, limit our ability to raise additional debt or equity financing to operate our business, including during economic or business downturns, and limit our ability to compete effectively or take advantage of new business opportunities.

 

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We incur significant costs related to the development of our workspaces, which we may be unable to recover in a timely manner or at all.

At each of our locations, we create beautiful workspaces that make our members feel welcome and at home. Development of a workspace for members typically takes several months from the date we take possession of the space under the relevant lease to the opening date. During this time, we incur substantial upfront costs without recognizing any revenues from the space. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations—Growth and New Market Development Expenses” for a description of these costs.

To the extent that our members (in particular enterprise members) require configured solutions, we generally enter into multi-year membership agreements to help offset any increased upfront costs related to the development of these workspaces. In addition, as we go forward, we intend to continue to finance upfront development costs by attempting to secure tenant improvement allowances from landlords, focusing on management agreements and other partnerships under which the landlord pays in whole or in part for the build-out costs, and securing funding through capital markets and other financing transactions. We expect the capital expenditures associated with the development of our workspaces to continue to be one of the primary costs of our business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”. If we are unable to complete our development and construction activities for any reason, including an inability to secure adequate funding, or conditions in the real estate market or the broader economy change in ways that are unfavorable, we may be unable to recover these costs in a timely manner or at all.

Our development activities are also subject to cost and schedule overruns as a result of many factors, some of which are beyond our control and ability to foresee, including increases in the cost of materials and labor. In addition, while many of our existing leases provide for reimbursement by the landlord or building owner of a portion of the construction and development expenses we incur, our landlords or building owners may not reimburse us for these expenses in a timely manner and we may not continue to be granted these provisions in future leases that we negotiate. Our ability to negotiate lease terms that include significant tenant improvement allowances has been and is expected to continue to be impacted by our expansion into markets where such allowances are less common. To be eligible for reimbursement of these development expenses, we are also required to compile invoices, lien releases and other paperwork from our contractors, which is a time-consuming process that requires the cooperation of third parties whom we do not control. We may make errors in pursuing these reimbursement entitlements in accordance with the strict requirements of the landlords or building owners we deal with. In addition, we are subject to counterparty risk with respect to these landlords and building owners.

Changes to accounting rules or regulations and our assumptions, estimates and judgments may adversely affect the reporting of our business, our financial condition and our results of operations.

The consolidated financial statements included elsewhere in this prospectus are prepared in accordance with U.S. GAAP. New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. For example, in February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), codified as ASC 842, Leases. This update requires a lessee to recognize on its balance sheet right-of-use assets and lease liabilities for any leases with a lease term of more than twelve months.

Long-term leases are our primary means of securing real estate to deliver space-as-a-service to our members. We have early adopted ASC 842 in connection with the preparation of our financial statements as of and for the six months ended June 30, 2019. We applied the modified retrospective adoption method, and such financial statements reflect the adoption of ASC 842 as of January 1, 2019. However, our financial statements as of and for the year ended December 31, 2018 and prior periods were not restated and, as a result, may not be comparable. The adoption of ASC 842 had a material impact on our consolidated balance sheet. We had lease right-of-use assets, net totaling approximately $15 billion and lease obligations totaling approximately $18 billion included on our unaudited interim condensed consolidated balance sheet as of June 30, 2019. See Note 2 to the unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for additional details regarding the impact of the adoption of ASC 842. Other future changes to accounting rules or regulations could also have a material adverse effect on the reporting of our business, financial condition and results of operations.

 

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Additionally, our assumptions, estimates and judgments related to complex accounting matters could significantly affect our results of operations. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for judgments about the carrying values of assets, liabilities and equity, as well as the amount of revenue and expenses that are not readily apparent from other sources. Our financial condition and results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions.

Fluctuations in exchange rates may adversely affect us.

Our international businesses typically earn revenue and incur expenses in local currencies, primarily the British Pound, Euro and Chinese Yuan. For example, we earned approximately 44%, 41%, and 31% of our revenues from subsidiaries whose functional currency is not the U.S. dollar for the six months ended June 30, 2019 and the years ended December 31, 2018 and 2017, respectively. Because our consolidated financial statements are reported in U.S. dollars, we are exposed to currency translation risk when we translate the financial results of our consolidated non-U.S. subsidiaries from their local currency into U.S. dollars. As foreign currency exchange rates change, translation of the statements of operations of our international businesses into U.S. dollars affects period-over-period comparability of our operating results. Any strengthening of the U.S. dollar against one or more of these currencies could materially adversely affect our business, financial condition and results of operations.

Risks Relating to Laws and Regulations Affecting Our Business

Our extensive foreign operations and contacts with landlords and other parties in a variety of countries subject us to risks under U.S. and other anti-corruption laws, as well as applicable export controls and economic sanctions.

Under the Foreign Corrupt Practices Act (the “FCPA”) and similar anti-corruption laws and local laws prohibiting certain corrupt payments to government officials or agents, we may become liable for the actions of our directors, officers, employees, agents or other strategic or local partners or representatives over whom we may have little actual control. We are continuously engaged in sourcing and negotiating new locations around the world, and certain of the landlords, real estate agents or other parties with whom we interact may be government officials or agents, even without our knowledge. As we increase our international sales and business operations, our contacts with foreign public officials, and therefore our potential exposure to liability under laws such as the FCPA, are likely to increase.

Additionally, as we pursue our growth strategy of entering into joint ventures, revenue-sharing arrangements and other partnerships with local partners in non-U.S. jurisdictions, our use of intermediaries, and therefore our potential exposure to liability under laws such as the FCPA, are likely to increase.

Similarly, our international sales and business operations expose us to potential liability under a wide variety of U.S. and international laws and regulations relating to economic sanctions and export control, such as those administered by the U.S. Office of Foreign Assets Control. Failure to comply with these laws and regulations could result in substantial fines, sanctions, civil or criminal penalties, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations and our financial condition.

Our business is subject to a variety of U.S. and non-U.S. laws, many of which are evolving and could limit or otherwise negatively affect our ability to operate our business.

Laws and regulations are continuously evolving, and compliance is costly and can require changes to our business practices and significant management time and effort. It is not always clear how existing laws apply to our business model. We strive to comply with all applicable laws, but the scope and interpretation of the laws that are or may be applicable to us is often uncertain and may conflict across jurisdictions.

Existing local building codes and regulations, and any future changes to these codes or regulations, may increase our development costs or delay the development of our workspaces.

Our development activities are subject to local, state and federal laws, as well as the oversight and regulation in accordance with local building codes and regulations relating to building design, construction, safety, environmental protection and related matters. We are responsible for complying with the requirements of individual jurisdictions and

 

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must ensure that our development activities comply with varying standards by jurisdiction. Any existing or new government regulations or ordinances that relate to our development activities may result in significant additional expenses to us and, as a result, might adversely affect our results of operations.

Changes in tax laws and unanticipated tax liabilities could adversely affect the taxes we pay and therefore our financial condition and results of operations.

As a global company, we are subject to taxation in numerous countries, states and other jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political and other conditions, and significant judgment is required in applying the relevant provisions of tax law.

If such changes were to be adopted or if the tax authorities in the jurisdictions where we operate were to challenge our application of relevant provisions of applicable tax laws, our financial condition and results of operations could be adversely affected.

Failure by certain of our subsidiaries in complying with laws and regulations applicable to investment platforms, including the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), could result in substantial harm to our reputation and results of operations.

Certain of our subsidiaries are subject to laws and regulations applicable to investment platforms, including those applicable to investment advisers under the Advisers Act. The Advisers Act imposes numerous obligations and duties on registered investment advisers, including record-keeping, operating and marketing requirements, disclosure obligations and prohibitions on self-dealing. The failure of any of these subsidiaries to comply with the Advisers Act could cause the SEC to institute proceedings and impose sanctions for violations, including censure, or to terminate the registration of our subsidiaries as investment advisers or prohibit them from serving as an investment adviser to SEC-registered funds. Similarly, these subsidiaries rely on exemptions from various requirements of ERISA to the extent these subsidiaries receive investments by benefit plan investors. The failure of our relevant subsidiaries to comply with these laws and regulations could irreparably harm our reputation or lead to litigation or regulatory or other legal proceedings, any of which could harm our results of operations.

Risks Relating to Our Organizational Structure

Our only material assets are our indirect interests in the We Company Partnership, and we are accordingly dependent upon distributions from the We Company Partnership to pay dividends and taxes and other expenses.

The We Company is a holding company and has no material assets other than an indirect general partner interest and indirect limited partner interests in the We Company Partnership. The We Company has no independent means of generating revenue. We intend to cause our subsidiaries (including the We Company Partnership) to make distributions in an amount sufficient to cover all applicable taxes and other expenses payable and dividends, if any, declared by us. The agreements governing our bank facilities and the indenture governing our senior notes impose, and the agreement governing the 2019 Credit Facility will impose, certain restrictions on distributions by WeWork Companies LLC to us, and may limit our ability to pay cash dividends. The terms of any credit agreements or other borrowing arrangements we or our subsidiaries enter into in the future may impose similar restrictions. To the extent that The We Company needs funds, and any of our direct or indirect subsidiaries is restricted from making such distributions under these debt agreements or applicable law or regulation, or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

If The We Company were deemed an “investment company” under the Investment Company Act of 1940 (the “1940 Act”) as a result of its ownership of the We Company Partnership, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

A person may be deemed to be an “investment company” for purposes of the 1940 Act if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items), absent an applicable exemption. The We Company has no material assets other than its interest in the We Company Partnership. Through its interests in the general partner of the We Company Partnership, The We Company generally

 

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has control over all of the affairs and decision making of the We Company Partnership. Furthermore, the general partner of the We Company Partnership cannot be removed as general partner of the We Company Partnership without the approval of The We Company. On the basis of The We Company’s control over the We Company Partnership, we believe that the indirect interest of The We Company in the We Company Partnership is not an “investment security” within the meaning of the 1940 Act. If The We Company were to cease participation in the management of the We Company Partnership, however, its interest in the We Company Partnership could be deemed an “investment security,” which could result in The We Company being required to register as an investment company under the 1940 Act and becoming subject to the registration and other requirements of the 1940 Act.

The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options and impose certain governance requirements. We intend to conduct our operations so that The We Company will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen which would require The We Company to register as an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among The We Company, the We Company Partnership, members of our management team and related entities (including WE Holdings LLC) or any combination thereof and materially adversely affect our business, financial condition and results of operations.

Risks Relating to This Offering and Ownership of Our Class A Common Stock

The multiple-class structure of our common stock has the effect of concentrating voting control with holders of our high-vote stock and limiting your ability to influence corporate matters.

Shares of our Class B common stock and Class C common stock have ten votes per share, whereas shares of our Class A common stock being offered by us in this offering have one vote per share. When this offering is completed, our outstanding high-vote stock will represent                 % of the total voting power of our outstanding capital stock (or                 % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). Due to the ten-to-one voting ratio between our high-vote stock and Class A common stock, the holders of our high-vote stock collectively will continue to control a majority of the combined voting power of our capital stock, until the earlier of the time that the aggregate number of outstanding shares of Class B common stock and Class C common stock owned by Adam and certain of his permitted transferees represents less than 5% of the aggregate number of then-outstanding shares of Class A common stock, Class B common stock and Class C common stock or Adam’s permanent incapacity or death. Holders of shares of our high-vote stock will be able to significantly influence matters submitted to our stockholders for approval, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction. This concentrated control will significantly limit your ability to influence corporate matters. In addition, if in the future we issue additional shares of high-vote stock, which carry ten votes per share, holders of shares of Class A common stock carrying one vote per share will have their voting interests diluted disproportionate to their economic dilution.

Future transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, and transfers of partnership interests in the We Company Partnership will generally result in nine-tenths of the corresponding shares of our Class C common stock being redeemed, in each case subject to certain exceptions including (i) transfers to affiliates (including immediate family members), (ii) transfers by certain entities controlled by our co-founders to their partners, members or stockholders, (iii) transfers of membership or other ownership interests in WE Holdings LLC to affiliates (including immediate family members), (iv) transfers to certain qualified charitable organizations and (v) transfers approved by our board of directors. The conversion of Class B common stock to Class A common stock over time, while increasing the absolute voting power of holders of our Class A common stock, may have the effect of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result, the relative voting power of holders of Class A common stock may remain limited for a significant period of time. See “Description of Capital Stock” for descriptions of our Class A common stock, Class B common stock and Class C common stock and the rights associated with each.

 

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Adam Neumann will control a majority of our voting stock upon completion of this offering.

Following the completion of this offering, as a result of his share ownership, together with his voting arrangements with certain stockholders, Adam Neumann, our Co-Founder and Chief Executive Officer, will be able to exercise voting control with respect to an aggregate of                  shares of our Class A common stock,                  shares of our Class B common stock and                  shares of our Class C common stock representing approximately                 % of the total voting power of our outstanding capital stock (or approximately                 % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). As a result, Adam will continue to have the ability to control significant corporate activities, including:

 

   

the election and removal of our board of directors and, through our board of directors, decision-making with respect to our business strategy and company policies, and the appointment and removal of our corporate officers;

 

   

acquisitions and dispositions of businesses and assets, mergers and other business combinations;

 

   

issuances of shares of our capital stock; and

 

   

payment of dividends.

Adam’s voting control will limit the ability of other stockholders to influence corporate activities and, as a result, we may take actions that stockholders other than Adam do not view as beneficial. Adam’s voting control may also inhibit transactions involving a change of control of The We Company, including transactions in which you as a holder of our Class A common stock might otherwise receive a premium for your shares. As a stockholder, even a controlling stockholder, Adam is entitled to vote his shares, and shares over which he has voting control as a result of voting arrangements, in his own interests, which may not be the same as, or may conflict with, the interests of our other stockholders. For a description of the voting arrangements affecting our capital stock, see “Description of Capital Stock—Voting Arrangements”.

Further, following the completion of this offering, SoftBank entities will beneficially own                  shares of our Class A common stock representing approximately                 % of the total voting power of our outstanding capital stock (or approximately                 % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). In addition, SoftBank entities are expected to acquire additional shares of our Class A common stock upon the exercise of the 2019 warrant, which is scheduled for April 2020. Therefore, even if Adam were to sell a significant number of his shares of our voting stock, the voting power of our outstanding capital stock may continue to be significantly concentrated and the ability of others to influence our corporate matters may continue to be significantly limited.

We are a “controlled company” as defined in Nasdaq rules, and are able to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of companies that are not controlled companies.

Upon completion of this offering, Adam Neumann will own or control more than 50% of the total voting power of our capital stock and, as such, we will be a controlled company under the rules of Nasdaq. As a controlled company, we may take advantage of exemptions under the rules of Nasdaq with respect to certain corporate governance requirements, such as the requirement that we have a compensation committee and nominating and corporate governance committee composed entirely of independent directors.

For so long as we are a controlled company, you will not have the same protections afforded to stockholders of companies that are subject to these and all of the other corporate governance requirements of the rules of Nasdaq.

The difference in the voting rights of our Class A common stock and high-vote stock may harm the value and liquidity of our Class A common stock.

The difference in the voting rights of our Class A common stock and high-vote stock could harm the value of our Class A common stock to the extent that any investor or potential future purchaser of our Class A common stock ascribes value to the right of holders of our high-vote stock to ten votes per share of high-vote stock. The existence of multiple classes of common stock could also result in less liquidity for our Class A common stock than if there were only one class of our common stock.

 

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Our multiple-class structure may depress the trading price of our Class A common stock.

Our multiple-class structure may result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of shares of common stock from being added to these indices. In addition, several stockholder advisory firms have announced their opposition to the use of multiple- class structures. As a result, the multiple-class structure of our common stock may prevent the inclusion of our Class A common stock in these indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our Class A common stock outstanding prior to this offering. Therefore, if you purchase our Class A common stock in this offering, you will incur an immediate substantial dilution of $             in pro forma net tangible book value per share from the price you paid (calculated based on the assumed initial public offering price of $             per share, which represents the midpoint of the estimated offering price range set forth on the cover of this prospectus). For additional information about the dilution that you will experience immediately upon completion of this offering, see “Dilution”.

There has been no prior public market for our Class A common stock, the price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our Class A common stock. The initial public offering price of our Class A common stock was determined through negotiation between us and the underwriters. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our Class A common stock following completion of this offering. In addition, the market price of our Class A common stock following completion of this offering may be higher or lower than the initial public offering price. The market price of our Class A common stock following completion of this offering will depend on a number of factors, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part of your investment in our Class A common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our Class A common stock include the following:

 

   

actual or anticipated changes in our operating results;

 

   

actual or anticipated developments in our industry or our business, our competitors’ businesses or the competitive landscape generally;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

additions or departures of key management or other personnel;

 

   

litigation or disputes involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

   

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

   

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

   

changes in accounting standards, policies, guidelines, interpretations or principles;

 

   

sales of shares of our stock by us, our insiders or our other stockholders;

 

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the failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; and

 

   

general economic conditions and slow or negative growth in any of our significant markets.

The stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our Class A common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the company. Any litigation of this type brought against us could result in substantial costs and a diversion of management’s attention and resources.

Our quarterly operating results may fluctuate, which could cause our stock price to decline.

Our quarterly operating results may fluctuate for a variety of reasons, many of which are beyond our control, including:

 

   

our success in retaining existing members and attracting new members, including our ability to adapt to rapidly evolving market trends and member preferences;

 

   

fluctuations in revenue generated from our members, including as a result of variability in our membership levels and use of our product and service offerings;

 

   

the amount and timing of our operating expenses;

 

   

the timing and success of openings of new locations;

 

   

the impact of competitive developments in the markets in which we operate and our response to those developments;

 

   

economic and market conditions, particularly those affecting our industry; and

 

   

other risks and factors described in this “Risk Factors” section.

The occurrence of any one of the events contemplated above, or the cumulative effect of the occurrence of one or more of such factors, could cause our quarterly results to fluctuate significantly. As a result, quarterly comparisons of results may not be meaningful, and you should not rely on the historical results of one quarter as an indication of future performance, and interim period results are not necessarily indicative of the results for the full year.

An active trading market for our Class A common stock may never develop or be sustained.

Our Class A common stock has been approved for listing on Nasdaq under the symbol “WE”. However, we cannot assure you that an active trading market for our Class A common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our Class A common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies using our shares as consideration.

If equity research analysts publish unfavorable commentary or downgrade our Class A common stock, the price and trading volume of our Class A common stock could decline.

The trading market for our Class A common stock could be affected by whether equity research analysts publish research or reports about us and our business. We cannot predict at this time whether any research analysts will publish research and reports on us and our Class A common stock. If one or more equity analysts do cover us and our Class A common stock and publish research reports about us, the price or trading volume of our Class A common stock could decline if one or more securities analysts downgrade our Class A common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

 

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If our involvement in online news articles published about the Company were held to be in violation of the Securities Act, we could be required to repurchase securities sold in this offering. You should rely only on statements made in this prospectus in determining whether to purchase our shares.

In May 2019, Axios and Business Insider published online news articles that included quotes from Adam Neumann, our Co-Founder and Chief Executive Officer, and Artie Minson, our Co-President and Chief Financial Officer, regarding our business strategy and results. In addition to these articles, there has been substantial additional press coverage regarding our business and this offering during the offering process, including coverage of the timing of this offering, the underwriters involved in this offering and the “analyst day” that we hosted in connection with this offering as well as coverage of our concurrent debt financing.

In making your investment decision, you should only rely on the information contained in this prospectus. Articles and other press coverage about our company present information in isolation and do not contain all of the information included in this prospectus, including the risks and uncertainties described in this section. You should carefully evaluate all of the information included in this prospectus.

We do not believe that our involvement in the May 2019 online news articles or other news articles constitutes a violation of Section 5 of the Securities Act. However, if our involvement were held by a court to be in violation of the Securities Act, we could be required to repurchase the shares sold to purchasers in this offering at the original purchase price, plus statutory interest from the date of purchase, for a period of one year following the date of the violation. We would contest vigorously any claim that a violation of the Securities Act occurred and could incur considerable expense in contesting any such claim.

Although we ceased to be an “emerging growth company”, we can continue to take advantage of certain reduced disclosure requirements in this registration statement, which may make our Class A common stock less attractive to investors.

We ceased to be an emerging growth company as defined in the JOBS Act on December 31, 2018. However, because we ceased to be an emerging growth company after we confidentially submitted our registration statement related to this offering to the SEC, we will be treated as an emerging growth company for certain purposes until the earlier of the date on which we complete this offering and December 31, 2019. As such, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including reduced disclosure obligations regarding the provision of selected financial data and executive compensation arrangements. We cannot predict if investors will find our Class A common stock less attractive because we have relied on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be less demand for our Class A common stock and the price that some investors are willing to pay for our Class A common stock may decrease.

We will incur increased costs and regulatory burden and devote substantial management time as a result of being a public company.

Prior to this offering, we were not subject to the continuous disclosure requirements of U.S. securities laws and the rules, regulations and policies of Nasdaq. As a public company, we will incur increased legal, accounting and other costs not incurred as a private company. We will be subject to, among other things, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the corporate governance requirements found in the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and related rules and regulations of the SEC, as well as the rules and regulations implemented by Nasdaq. We expect that compliance with these requirements will increase our legal, accounting and financial compliance costs and will make some activities more difficult, time-consuming and costly. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents may require our management and other personnel to divert attention from operational and other business matters to devote substantial time to these public company requirements, which could adversely affect our business, financial condition and results of operations.

 

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As a public company, we will be obligated to maintain an effective system of disclosure controls and internal controls over financial reporting that is compliant with Section 404 of the Sarbanes-Oxley Act. Our current internal control systems and procedures may not prove to be adequate to support our rapid growth. Any failure of our internal systems, controls and procedures could have an adverse effect on our stated results of operations and harm our reputation.

Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”) and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, our management will be required to report on the effectiveness of our disclosure controls and internal control over financial reporting, and our auditor will be required to deliver an attestation report on the effectiveness of our disclosure controls and internal control over financial reporting, starting with the second annual report that we file with the SEC after the completion of this offering. Because we are not currently required to comply with Section 404, we are not currently required to make an assessment of the effectiveness of our internal controls, or to deliver a report that assesses the effectiveness of our internal control over financial reporting. We have not yet determined whether our existing internal controls over financial reporting are compliant with Section 404. This process will require the investment of substantial time and resources, including by our Chief Financial Officer and other members of our senior management. In addition, we cannot predict the outcome of this determination and whether we will need to implement remedial actions. Management’s assessment of our internal control systems and procedures may identify weaknesses and conditions that need to be addressed or other matters that may raise concerns for investors. The determination and any remedial actions required could result in us incurring additional costs that we did not anticipate. Additionally, any actual or perceived weakness or condition that needs to be addressed in our internal control systems may have an adverse impact on our business.

Irrespective of compliance with Section 404, as we mature, we will need to further develop our internal control systems and procedures to keep pace with our rapid growth and we are currently working to improve our controls. Our current controls and any new controls that we develop may become inadequate because, among other reasons, they may not keep pace with our growth or the conditions in our business may change. We are in the process of developing and implementing an enterprise risk management framework, but this development and implementation may not proceed smoothly or on our projected timetable, and this framework may not fully protect us against operational risks and losses.

We have made, and will continue to make, changes to our financial management control systems and other areas to manage our obligations as a public company, including corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. However, these and other measures that we might take may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis. If we fail to maintain effective systems, controls and procedures, including disclosure controls and internal controls over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations and prevent fraud could be adversely impacted. We may also experience higher than anticipated operating expenses, as well as higher independent auditor fees, during and after the implementation of these changes.

If we are unable to implement any of the changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and results of operations. Additionally, we do not expect that our internal control systems, even if timely and well established, will prevent all errors and all fraud. Internal control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

Our management will have broad discretion over the use of the proceeds we receive from this offering and might not use them effectively, which could affect our results of operations and cause our share price to decline.

Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds from this offering in ways that increase the value of your investment. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You may not agree with the decision of our management and will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

 

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Future sales, or the perception of future sales, of our Class A common stock may depress the price of our Class A common stock.

The market price of our Class A common stock could decline significantly as a result of sales of a large number of shares of our stock in the market after this offering. The perception that these sales might occur could depress the market price of Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon completion of this offering, we will have outstanding             shares of common stock (or             shares if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). The shares of Class A common stock offered in this offering will be freely tradable without restriction under the Securities Act, except for any shares of Class A common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.

In connection with this offering, we, each of our executive officers and directors and holders of substantially all of our Class A common stock (including securities convertible into or exchangeable for shares of our Class A common stock) have entered into lock-up agreements under which they have agreed not to sell or otherwise transfer their shares for a period of 180 days after the date of this prospectus, provided that in the case of shares held or beneficially owned by WE Holdings LLC, Adam Neumann or their respective affiliates (other than shares directly held by WE Holdings LLC but indirectly owned by persons other than Adam Neumann, his family and their respective affiliates) and SBWW Cayman, such restrictions will apply until the later of (i) 180 days after the date of this prospectus and (ii) 180 days after the Exercise Date (which, as defined in the 2019 warrant, is April 3, 2020). These lock-up provisions are subject to certain exceptions and may be waived by the representatives of the underwriters at any time. Although we have been advised that there is no present intention to do so, the representatives of the underwriters may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. See “Underwriting”.

We have also issued securities in connection with investments or acquisitions, including the issuance of holdback securities as contingent consideration, and may do so again in the future. The number of shares of our capital stock issued in connection with an investment or acquisition could constitute a material portion of the then outstanding shares of our Class A common stock.

In addition, UBS AG, Stamford Branch, JPMorgan Chase Bank, N.A. and Credit Suisse AG, New York Branch, affiliates of the underwriters in this offering, have provided a line of credit of up to $500 million to Adam Neumann, of which approximately $380 million principal amount was outstanding as of July 31, 2019. The line of credit is secured under a security and pledge agreement by a pledge of approximately              shares of our Class B common stock beneficially owned by Adam and held through WE Holdings LLC, of which Adam serves as a managing member. The line of credit has a scheduled maturity of September 18, 2020, and may be extended from time to time at the discretion of the lenders.

If the price of our Class A common stock declines to a level that results in a margin call, absent a repayment of the loan, Adam would be required to pledge additional shares of our Class B common stock or cash as collateral. In the case of nonpayment at maturity or another event of default (including but not limited to the borrower’s inability to satisfy a margin call, which must be instituted by the lenders following certain declines in our stock price), the lenders may, in addition to other remedies, exercise their rights under the loan agreement to foreclose on and sell the amount of shares of our Class A common stock into which the shares of Class B common stock pledged by Adam and WE Holdings LLC would be converted upon transfer, provided that no sales of the pledged shares may be made to third parties until 180 days after the date of the prospectus relating to this offering. If shares of our Class A common stock were sold by Adam or the lenders in connection with a margin call, such sales could cause our stock price to decline. See “Underwriting—Relationships with Underwriters” for more information.

We do not expect to declare any dividends for the foreseeable future.

We do not anticipate declaring or paying any dividends on our Class A common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth

 

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and development of our business. Consequently, investors may need to rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Class A common stock. Any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors. See “Dividend Policy”.

Provisions in our restated certificate of incorporation and amended and restated bylaws or Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our Class A common stock.

Delaware corporate law contains, and our restated certificate of incorporation and amended and restated bylaws will contain, provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous, including the following:

 

   

we have multiple classes of common stock with disparate voting power, which provides holders of our high-vote stock with the ability to control the outcome of matters requiring stockholder approval, even if such holders own significantly less than a majority of the shares of our outstanding common stock;

 

   

our restated certificate of incorporation will authorize undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without stockholder approval, subject to the terms of any class or series of preferred stock then outstanding and provided that no preferred stock may be issued without the prior consent of a majority of the voting power of the Class B common stock;

 

   

our restated certificate of incorporation will not provide for cumulative voting;

 

   

certain litigation against us can only be brought in the State of Delaware; and

 

   

advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual or special meeting of stockholders.

Any provision of our restated certificate of incorporation, our amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.

Our restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for certain disputes with us or our directors, officers or employees.

Our restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, stockholders, employees or agents to us or our stockholders, (iii) any action asserting a claim against us or any of our directors, officers, stockholders, employees or agents arising out of or relating to any provision of the Delaware General Corporation Law (the “DGCL”), our restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim against us or any of our directors, officers, stockholders, employees or agents that is governed by the internal affairs doctrine of the State of Delaware will, in each case, be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have subject matter jurisdiction, any state or federal court in the State of Delaware), subject to the court having personal jurisdiction over indispensable parties named as defendants.

Under this provision, claims subject to exclusive jurisdiction in the federal courts, such as suits brought to enforce a duty or liability created by the Exchange Act or the rules and regulations thereunder, need not be brought in the Court of Chancery of the State of Delaware.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current views with respect to, among other things, future events and our future business, financial condition, results of operations and prospects. These statements are often, but not always, made through the use of words or phrases such as “may”, “should”, “could”, “predict”, “potential”, “believe”, “will likely result”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would” and “outlook”, or the negative version of those words or phrases or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements include, but are not limited to, statements concerning the following:

 

   

our expectations regarding the sustainability of our rapid growth and our ability to manage our growth effectively;

 

   

our expectations regarding financial performance, including but not limited to revenue, expenses, potential profitability, committed revenue backlog, run-rate revenue, non-GAAP measures and other results of operations;

 

   

our expectations regarding future operating performance, including but not limited to our expectations regarding future locations, workstation capacity, memberships and enterprise membership percentage;

 

   

the demand for our solutions and products and services we offer, including the size of our addressable market, market share, competitive position and market trends, including our ability to grow our business in what we have identified as our target cities;

 

   

our ability to expand in new and existing markets and introduce new solutions, products and services;

 

   

our ability to retain existing members and attract new members;

 

   

our ability to open new locations with satisfactory arrangements in sufficient numbers or at sufficient rates to continue the future growth of our membership base and our business;

 

   

our expectations regarding the performance of ARK, our new global real estate acquisition and management platform;

 

   

our expectations regarding current and future litigation or other legal proceedings;

 

   

our expectations regarding the effects of existing and developing laws and regulations;

 

   

our ability to maintain the value and reputation of our brand, including our ability to maintain and protect our intellectual property;

 

   

our ability to meet the requirements of our leases and other occupancy arrangements;

 

   

our ability to hire, develop, retain and motivate highly skilled and dedicated team members, including members of our global leadership team;

 

   

our anticipated capital expenditures and our estimates regarding capital requirements;

 

   

our ability to meet the requirements of our existing debt;

 

   

our ability to obtain financing on adequate terms;

 

   

our expectations concerning relationships with our strategic partners and the success of our strategic partnerships and joint ventures;

 

   

our ability to successfully acquire and integrate new offerings on our platform;

 

   

our increased expense associated with being a public company;

 

   

our ability to implement, maintain and improve effective internal controls; and

 

   

our anticipated use of the net proceeds from this offering.

 

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These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry as well as certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in “Risk Factors” and other cautionary statements included in this prospectus, which you should consider and read carefully. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus, and our future levels of activity and performance, may not occur and actual results could differ materially and adversely from those described or implied in the forward-looking statements. As a result, you should not regard any of these forward-looking statements as a representation or warranty by us or any other person or place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

In addition, statements that contain “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe that this information provides a reasonable basis for these statements, this information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus forms a part completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by the cautionary statements contained in this section and elsewhere in this prospectus.

 

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MARKET, INDUSTRY AND OTHER DATA

This prospectus contains information concerning our solutions and our industry, including market size and growth rates of the markets in which we participate, that are based on industry surveys and publications or other publicly available information, other third-party survey data and research reports commissioned by us and our internal sources. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to this information. Industry surveys and publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of the included information. We have not independently verified this third-party information. Similarly, other third-party survey data and research reports commissioned by us, while believed by us to be reliable, are based on limited sample sizes and have not been independently verified by us.

While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections in this prospectus.

Certain statistical information in this prospectus is based on the 2019 Global Impact Report commissioned by us and produced by us in partnership with HR&A Advisors, of which certain numbers are based on the 2018 WeWork member census. The 2018 WeWork member census was sent via e-mail to WeWork members in October and December of 2018 and received responses from over 18,000 WeWork members. All statistical information in this prospectus based on the 2019 Global Impact Report represents the percentage of members who responded to the 2018 WeWork member census.

 

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USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $            (or $             if the underwriters exercise in full their option to purchase additional shares of our Class A common stock), based on an assumed initial public offering price of $            per share (the midpoint of the price range set forth on the cover page of this prospectus), less underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for us and our stockholders.

We currently intend to use the net proceeds of this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. Our management will have broad discretion in the application of the net proceeds of this offering, and investors will be relying on the judgment of our management in this regard. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in short-term, investment grade, interest-bearing instruments or hold them as cash.

A $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) the net proceeds to us from this offering by $            (or $            if the underwriters exercise in full their option to purchase additional shares of Class A common stock) less underwriting discounts and commissions and estimated offering expenses payable by us, assuming that the number of shares offered by us remains the same. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering by $            (or $            if the underwriters exercise in full their option to purchase additional shares of Class A common stock) less underwriting discounts and commissions and estimated offering expenses payable by us, assuming that the initial public offering price remains the same.

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We do not intend to pay dividends on our Class A common stock or our Class B common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors, including:

 

   

our historic and projected financial condition, liquidity and results of operations;

 

   

our capital levels and needs;

 

   

tax considerations;

 

   

any acquisitions or potential acquisitions that we may consider;

 

   

statutory and regulatory prohibitions and other limitations;

 

   

general economic conditions; and

 

   

other factors deemed relevant by our board of directors.

The agreements governing our bank facilities and the indenture governing our senior notes impose, and the agreement governing the 2019 Credit Facility will impose, certain restrictions on distributions by WeWork Companies LLC to us, and may limit our ability to pay cash dividends. The terms of any credit agreements or other borrowing arrangements we enter into in the future may also restrict distributions to us and limit our ability to pay cash dividends. See “Description of Indebtedness”.

As a Delaware corporation, we are subject to certain restrictions on the payment of dividends under the DGCL. Generally, a Delaware corporation may only pay dividends either out of surplus or out of the current or the immediately preceding year’s net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal its book value.

 

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CAPITALIZATION

The following table shows our cash and cash equivalents and capitalization as of June 30, 2019:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the IPO-related security conversions, (ii) the consummation of the stock split to be effected on the closing date of this offering pursuant to which each share of our capital stock will be reclassified into                      shares, (iii) the filing of our restated certificate of incorporation immediately prior to the completion of this offering, (iv) the issuance of                  shares of Class A common stock underlying restricted stock units for which the time-based vesting condition was satisfied as of June 30, 2019 and for which the performance-based vesting condition will be satisfied upon the completion of this offering and (v) the conversion of the 2018 convertible note and exercise of the 2018 warrant; and

 

   

on a pro forma as adjusted basis to give effect to the transactions described in the preceding bullet point as well as the issuance by us of                  shares of Class A common stock in this offering at an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus.

The pro forma and pro forma as adjusted information below is illustrative only, and our cash and cash equivalents and total capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing.

You should read the following table together with “Selected Historical Consolidated Financial and Operating Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of WeWork Companies Inc. and related notes thereto appearing elsewhere in this prospectus.

 

   
    As of June 30, 2019  
  (Amounts in thousands)       Actual             Pro forma           Pro forma as  
adjusted (1)
 

Cash and cash equivalents:

     

Total cash and cash equivalents

   $ 2,473,070       $                    $                
 

 

 

   

 

 

   

 

 

 

Long-term liabilities:

     

Bank facilities

   $ —       $        $    

2019 Credit Facility (2)

    —       

Long-term lease obligations

    17,916,797       

Long-term debt, net

    1,342,660       

Convertible related party liabilities, net

    2,665,197       

Other liabilities

    113,943       
 

 

 

   

 

 

   

 

 

 

Total long-term liabilities

    22,038,597       

Convertible preferred stock, $0.001 par value (3)

    3,591,086       

Redeemable noncontrolling interests

    1,113,807       

Equity: (4)

     

Class A common stock, $0.001 par value (5)

    41       

Class B common stock, $0.001 par value (6)

    129       

Class C common stock, $0.001 par value (7)

    —       

Additional paid-in capital (8)

    1,402,693       

Additional other comprehensive income (loss)

    18,045       

Accumulated deficit (8)

    (3,999,260)      

Noncontrolling interests

    278,948       
 

 

 

   

 

 

   

 

 

 

Total equity (deficit)

    (2,299,404)      
 

 

 

   

 

 

   

 

 

 

Total capitalization

   $   24,444,086       $        $    
 

 

 

   

 

 

   

 

 

 
                         

 

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(1)

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total equity and total capitalization by $            , less underwriting discounts and commissions and estimated offering expenses payable by us, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total equity and total capitalization would increase by approximately $            , less underwriting discounts and commissions and estimated expenses payable by us.

 

(2)

Concurrently with the closing of this offering, we expect to enter into the 2019 Credit Facility described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Debt Financing Transactions”. Subject to the satisfaction of certain conditions, we expect to draw $1.0 billion under that facility concurrently with the closing of this offering.

 

(3)

Actual: Series A Convertible Preferred Stock —                 shares authorized, issued and outstanding; Series B Convertible Preferred Stock —                 shares authorized, issued and outstanding; Series C Convertible Preferred Stock —                 shares authorized and                  shares issued and outstanding; Series D-1 Convertible Preferred Stock —                 shares authorized, issued and outstanding; Series D-2 Convertible Preferred Stock —                 shares authorized, issued and outstanding; Series E Convertible Preferred Stock —                 shares authorized, issued and outstanding; Series F Convertible Preferred Stock —                 shares authorized and                  shares issued and outstanding; Series G Convertible Preferred Stock —                 shares authorized and                 shares issued and outstanding; Series G-1 Convertible Preferred Stock —                 shares authorized and                 shares issued and outstanding; Acquisition Preferred Stock —                 shares authorized and                 shares issued and outstanding; and Junior Non-Voting Preferred Stock —                 shares authorized, issued and outstanding. Pro forma and pro forma as adjusted: no shares authorized, issued or outstanding.

 

(4)

Actual amounts do not give effect to the consummation of the stock split to be effected on the closing date of this offering.

 

(5)

Actual:                 shares authorized and                  shares issued and outstanding. Pro forma:                  shares authorized and                  shares issued and outstanding. Pro forma as adjusted:                  shares authorized and                 shares issued and outstanding.

 

(6)

Actual:                  shares authorized and                  shares issued and outstanding. Pro forma:                  shares authorized and                  shares issued and outstanding. Pro forma as adjusted:                  shares authorized and                  shares issued and outstanding.

 

(7)

Actual:                  shares authorized and                  shares issued and outstanding. Pro forma:                  shares authorized and                  shares issued and outstanding. Pro forma as adjusted:                  shares authorized and                  shares issued and outstanding.

 

(8)

Pro forma and pro forma as adjusted gives effect to stock-based compensation expense of approximately $             million associated with the portion of restricted stock units and stock options for which the service period had been rendered as of                     , 2019 but for which vesting is also contingent on our initial public offering. This pro forma adjustment related to stock-based compensation expense of approximately $             million has been reflected as an increase in additional paid-in capital and accumulated deficit. See Note 2 to the unaudited interim condensed consolidated financial statements of WeWork Companies Inc. included elsewhere in this prospectus.

The information set forth in the table above does not give effect to the 2019 warrant. Under the terms of the 2019 warrant, we have the right to receive $1.5 billion on April 3, 2020 in exchange for the issuance of                  shares of our Class A common stock at a price of $         per share (subject to equitable adjustment in the event of any further stock split, stock dividend, reverse stock split or similar recapitalization event from the closing of this offering through April 3, 2020). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Note and Warrant Agreements”.

 

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DILUTION

If you invest in our Class A common stock, your ownership interest will be diluted to the extent that the initial public offering price per share of our Class A common stock exceeds the pro forma as adjusted net tangible book value per share of our Class A common stock immediately following the completion of this offering.

Net tangible book value per share is determined as of any date by subtracting goodwill and intangible assets allocable to the Company’s common shareholders from the total book value of the Company’s total equity (deficit) and dividing the difference by the number of shares of Class A common stock and Class B common stock deemed to be outstanding as of that date.

Our historical net tangible book value (deficit) per share as of June 30, 2019 was $            , or $             per share (without giving effect to the consummation of the stock split to be effected on the closing date of this offering). Our pro forma net tangible book value per share as of June 30, 2019 was $            , or $             per share, after giving effect to (i) the IPO-related security conversions, (ii) the consummation of the stock split to be effected on the closing date of this offering pursuant to which each share of our capital stock will be reclassified into              shares, (iii) the conversion of the 2018 convertible note and exercise of the 2018 warrant and (iv) the issuance of                  shares of Class A common stock underlying restricted stock units for which the time-based vesting condition was satisfied as of June 30, 2019 and for which the performance-based vesting condition will be satisfied upon the completion of this offering.

After giving effect to our sale of                  shares of Class A common stock in this offering at an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, less underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of                     , 2019 would have been $            , or $             per share. This amount reflects an immediate increase in pro forma as adjusted net tangible book value of $             per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $             per share to new investors purchasing shares of Class A common stock in this offering. The following table illustrates this dilution on a per share basis:

 

   

Assumed initial public offering price per share

 

Pro forma net tangible book value per share at June 30, 2019

                  

Increase in pro forma net tangible book value per share attributable to this offering

 

Pro forma as adjusted net tangible book value per share upon completion of this offering

 

Dilution per share to new investors in this offering

 
         

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms determined at the time of pricing of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) pro forma as adjusted net tangible book value per share immediately following the completion of this offering by $             per share and increase (decrease) the dilution to new investors by $             per share, in each case less underwriting discounts and commissions and estimated offering expenses payable by us, assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same.

If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the pro forma as adjusted net tangible book value immediately following the completion of this offering would be $             per share and the dilution to new investors would be $             per share, in each case assuming an initial public offering price of $             per share, the midpoint of the range set forth on the cover of this prospectus.

 

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The following table summarizes, as of June 30, 2019, on a pro forma as adjusted basis as described above, the difference between existing stockholders and new investors in this offering with respect to the aggregate number of shares of common stock purchased and with respect to the total consideration and the average price per share paid to us by our existing stockholders and to be paid to us by the new investors in this offering.

 

       
    Shares purchased     Total consideration       Average price  
per share
 
        Number             Percent             Amount             Percent      

Existing stockholders

                           %      $                         %      $                

New investors

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      100.0%      $         100.0%      $    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                         

If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the number of shares held by existing stockholders upon completion of this offering would be reduced to     % of the total number of shares outstanding upon completion of this offering, and the number of shares held by new investors would increase to                  shares, or     % of the total number of shares outstanding upon completion of this offering.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

The following tables present the selected historical consolidated financial and other operating information for WeWork Companies Inc., the predecessor of The We Company. The following summary consolidated financial information for the years ended December 31, 2016, 2017 and 2018 and as of December 31, 2017 and 2018 has been derived from the audited annual consolidated financial statements of WeWork Companies Inc. included elsewhere in this prospectus. The audited annual consolidated financial statements have been prepared in accordance with GAAP and are presented in U.S. dollars. The summary condensed consolidated financial information as of June 30, 2019 and for the six months ended June 30, 2018 and 2019 has been derived from the unaudited interim condensed consolidated financial statements of WeWork Companies Inc. included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the unaudited interim condensed consolidated financial statements. The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period.

 

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The information presented below should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

     
    Year Ended December 31,     Six Months Ended June 30,  
  (Amounts in thousands, except share
  and per share data)
  2016     2017     2018     2018     2019  

Consolidated statement of operations information:

 

Revenue

   $ 436,099       $ 886,004       $ 1,821,751       $ 763,771       $ 1,535,420   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

         

Location operating expenses—cost of revenue (1)

    433,167        814,782        1,521,129        635,968        1,232,941   

Other operating expenses—cost of revenue (2)

    —        1,677        106,788        42,024        81,189   

Pre-opening location expenses

    115,749        131,324        357,831        156,983        255,133   

Sales and marketing expenses

    43,428        143,424        378,729        139,889        320,046   

Growth and new market development expenses (3)

    35,731        109,719        477,273        174,091        369,727   

General and administrative expenses (4)

    115,346        454,020        357,486        155,257        389,910   

Depreciation and amortization

    88,952        162,892        313,514        137,418        255,924   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    832,373        1,817,838        3,512,750        1,441,630        2,904,870   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (396,274)       (931,834)       (1,690,999)       (677,859)       (1,369,450)  

Interest and other income (expense), net

    (33,400)       (7,387)       (237,270)       (46,406)       469,915   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax loss

    (429,674)       (939,221)       (1,928,269)       (724,265)       (899,535)  

Income tax benefit (provision)

    (16)       5,727       850        1,373        (5,117)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (429,690)       (933,494)       (1,927,419)       (722,892)       (904,652)  

Net loss attributable to noncontrolling interests

    —        49,500        316,627        94,762        214,976   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to WeWork Companies Inc.

   $ (429,690)      $ (883,994)      $ (1,610,792)      $ (628,130)      $ (689,676)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to Class A and Class B common stockholders: (5)

 

Basic

   $ (2.66)      $ (5.54)      $ (9.87)      $ (3.87)      $ (4.15)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (2.66)      $ (5.54)      $ (9.87)      $ (3.87)      $ (4.15)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted

    161,324,940        159,689,116        163,148,918        162,482,366        166,301,575   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to Class A and Class B common stockholders: (5)

 

Basic

 

   $ (4.41)        $ (3.20)  
 

 

 

     

 

 

 

Diluted

 

   $ (4.41)        $ (3.20)  
 

 

 

     

 

 

 

Weighted-average shares used to compute pro forma net loss per share attributable to Class A and Class B common stockholders, basic and diluted

 

    338,368,587          365,154,863   
 

 

 

     

 

 

 
                                         

 

(1)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $84.0 million, $154.1 million and $281.5 million for the years ended December 31, 2016, 2017 and 2018, respectively, and $123.7 million and $230.0 million for the six months ended June 30, 2018 and 2019, respectively.

 

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(2)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $0, $1.2 million and $12.6 million in the years ended December 31, 2016, 2017 and 2018, respectively, and $5.7 million and $9.7 million for the six months ended June 30, 2018 and 2019, respectively.

 

(3)

Includes cost of revenue related to Powered by We in the amount of $0, $12.7 million and $57.9 million during the years ended December 31, 2016, 2017 and 2018, respectively, and $27.9 million and $85.1 million during the six months ended June 30, 2018 and 2019, respectively.

 

 

(4)

Includes stock-based compensation expense of $17.4 million, $260.7 million and $18.0 million for the years ended December 31, 2016, 2017 and 2018, respectively, and includes stock-based compensation expense of $10.5 million and $111.2 million for the six months ended June 30, 2018 and 2019, respectively.

 

(5)

See Note 22 to the audited annual consolidated financial statements and Note 24 to the unaudited interim condensed consolidated financial statements, each included elsewhere in this prospectus, for a description of how we compute basic and diluted net loss per share attributable to Class A and Class B common stockholders and pro forma basic and diluted net loss per share attributable to Class A and Class B common stockholders. Historical share and per share information does not give effect to the consummation of the stock split to be effected on the closing date of this offering. Pro forma share and per share information gives effect to the consummation of the stock split to be effected on the closing date of this offering pursuant to which each share of our capital stock will be reclassified into              shares.

 

     
    As of December 31,       As of June 30,    
  (Amounts in thousands)   2017     2018     2019  

Consolidated balance sheet information:

     

Cash and cash equivalents

   $ 2,020,805       $ 1,744,209       $ 2,473,070   

Total current assets

    2,427,096        2,464,078        3,032,323   

Property and equipment, net

    2,337,092        4,368,772        6,729,427   

Total assets

    5,364,072        8,644,916        27,047,235   

Total non-current liabilities

    1,755,924        4,675,071        22,038,597   

Total liabilities

    2,406,511        6,284,159        24,641,746   

Total convertible preferred stock included as temporary equity

    3,405,435        3,498,696        3,591,086   

Total redeemable noncontrolling interests included as temporary equity

    854,577        1,320,637        1,113,807   

Total equity (deficit)

    (1,302,451)       (2,458,576)       (2,299,404)  
                         

 

     
    Year Ended December 31,       Six Months Ended June 30,    
  (Amounts in thousands)   2016     2017     2018             2018                     2019          

Consolidated cash flow information:

         

Net cash provided by (used in) operating activities

   $ 176,905       $ 243,992       $ (176,729)      $ (84,363)      $ (198,711)  

Net cash used in investing activities

    (818,525)       (1,376,767)       (2,475,798)       (888,173)       (2,362,773)  

Net cash provided by financing activities

    727,908        2,724,315        2,658,469        745,794        3,430,258   

Effects of exchange rate changes

    (2,261)       (763)       (13,119)       2,726        15,956   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

   $ 84,027       $ 1,590,777       $ (7,177)      $ (224,016)      $ 884,730   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                         

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and the related notes and the other financial information included elsewhere in this prospectus.

This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results, performance and achievements could differ materially from those described in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under “Risk Factors”. Our historical results are not necessarily indicative of the results to be expected for any future period.

Overview

We provide our members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure. We believe our company has the power to elevate how people work, live and grow.

In early 2010, we opened our doors to our first member community at 154 Grand Street in New York City. In the beginning, our members consisted mostly of freelancers, start-ups and small businesses. Today, our global platform integrates space, community, services and technology in over 528 locations in 111 cities across 29 countries. Our 527,000 memberships represent global enterprises across multiple industries, including 38% of the Global Fortune 500. We are committed to providing our members around the world with a better day at work for less.

We have proven that community, flexibility and cost-efficiency can benefit the workplace needs of everyone from global citizens to global enterprises. We pioneered a “space-as-a-service” membership model that offers the benefits of a collaborative culture, the flexibility to scale workspace up and down as needed and the power of a worldwide community, all for a lower cost. Large enterprises are increasingly seeing the value proposition of our global platform. As of June 1, 2019, 40% of our memberships were with organizations with more than 500 employees (which we refer to as enterprise members), double the 20% as of March 1, 2017. We expect enterprise to continue to be our fastest growing membership type.

 

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We have grown significantly since our inception. Our membership base has grown by over 100% every year since 2014 as we have added new members at a strong pace while also strengthening our relationships with existing members. Of the new memberships added in 2018, 35% were attributable to organizations that were already members at the end of 2017. Across our member community, we have high retention rates and expanding relationships, reflecting high member satisfaction with our platform. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.

 

 

 

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As our business model evolves, our physical platform grows and our membership base expands, we expect to use the principles of demand aggregation to continue to offer a growing portfolio of products and services to meet our members’ needs. Our established partner relationships, a suite of our own We Company offerings and the trust of hundreds of thousands of members across the globe allow us to deliver products and services to our members at scale. Our position as a demand aggregator with a global physical platform allows us to connect our members with third-party service providers with minimal incremental costs. We believe our partnerships with third-party service providers will be a driver of higher margin revenue growth, further increasing our opportunity. See “Business—Our Global Platform”.

Our investments in our global platform, coupled with purpose-built technology and operational expertise, provide what we believe is a significant first-mover advantage over our competitors as the pioneer of the space-as-a-service model. We continue to learn from our data and experiences to innovate on what drives our member success and execute using our purpose-built technology and mission-driven team. We believe that we have laid the foundation to capitalize on our significant market opportunity by continuing to reinvent the future of work.

 

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Key Performance Indicators

To evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions, we rely on both our GAAP financial results and the following key performance measures.

Workstation Capacity

(in thousands)

 

 

LOGO         

Workstation capacity represents the estimated number of workstations available at open WeWork locations. As of June 1, 2019 we had workstation capacity of 604,000, up 101% from 301,000 as of June 1, 2018.

Workstation capacity is a key indicator of our scale and our capacity to sell memberships across our global platform. Our future capital expenditures and sales and marketing expenses will be a function of our efforts to increase workstation capacity. The cost at which we build out our workstations affects our capital expenditures, and the cost at which we acquire memberships and fill our workstations affects our sales and marketing expenses.

Workstation capacity is presented in this prospectus 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.

Memberships

(in thousands)

 

 

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Memberships are the cumulative number of WeWork memberships and on-demand memberships. WeWork memberships are memberships that provide access to a workstation and represent the number of memberships from our standard solutions and configured solutions. On-demand memberships provide access to shared workstations or private spaces as needed, by the minute, by the hour or by the day. Each WeWork membership and on-demand membership is considered to be one membership.

The number of memberships is a key indicator of the adoption of our global platform, the scale and reach of our network and our ability to fill our locations with members. Memberships also represent future growth and monetization opportunities as we expand our service offerings. As of June 1, 2019, we had 527,000 memberships, up 97% from 268,000 memberships as of June 1, 2018. As of June 1, 2019, approximately 94% of our total memberships were WeWork memberships, which contributed approximately 99% of our total membership and service revenue for the six months ended June 30, 2019. The remaining 6% of our total memberships were on-demand memberships, which contributed approximately 1% of our total membership and service revenue for the six months ended June 30, 2019.

Memberships are presented in this prospectus rounded to the nearest thousand. Memberships can differ from the number of individuals using workspace at our locations for a number of reasons, including members utilizing workspace for fewer individuals than the space was designed to accommodate.

Enterprise Membership Percentage

 

 

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Enterprise memberships represent memberships attributable to enterprise members, which are organizations with 500 or more full-time employees. Enterprise membership percentage represents the percentage of our memberships attributable to these organizations. There is no minimum number of workstations that an organization needs to reserve in order to be considered an enterprise member. For example, an organization with 700 full-time employees that pays for 50 of its employees to occupy workstations at our locations would be considered one enterprise member with 50 memberships. As of June 1, 2019, 40% of our memberships were attributable to enterprise members, up from 30% as of June 1, 2018. For the six months ended June 30, 2019, enterprise members accounted for 38% of membership and service revenue, compared to 29% for the six months ended June 30, 2018.

Enterprise members are strategically important for our business as they typically sign membership agreements with longer-term commitments for multiple solutions across our global platform, which enhances our revenue visibility. We have generally seen our location-level contribution margin percentage increase as more enterprises enter a location. We have proven our ability to meet the distinct needs of enterprise members. We plan to deepen existing relationships and forge new relationships with enterprise members.

 

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Run-Rate Revenue

(in billions)

 

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Run-rate revenue for a given period represents our revenue recognized in accordance with GAAP for the last month of such period multiplied by 12. We view run-rate revenue as an operating metric, and it is not intended to be and should not be used as a replacement for or forecast of revenue reported in accordance with GAAP.

Given the growth we have experienced, we view run-rate revenue as a useful metric in measuring the magnitude of our scale at a given point in time. As of June 30, 2019, 54% of our WeWork memberships had an initial commitment term of at least 12 months, while only 28% of our WeWork memberships were comprised of month-to-month commitments. WeWork memberships with month-to-month commitments renewed at an average rate of approximately 75% during the six months ended June 30, 2019. This monthly renewal rate was determined based on the average of each monthly renewal rate over the period. As of June 30, 2019, approximately one-third of our run-rate revenue was from enterprise members. Moving forward, we expect run-rate revenue to continue to grow as we expand our membership base and further monetize our platform.

Committed Revenue Backlog

(in billions)

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Committed revenue backlog as of a given date represents total non-cancelable contractual commitments, net of discounts, remaining under agreements entered into as of such date, which we expect will be recognized as revenue subsequent to such date. For membership agreements with month-to-month commitments commencing in a future month, the contractual commitment recorded within committed revenue backlog is one month of revenue. Existing month-to-month membership agreements are not included in the calculation of committed revenue backlog.

Committed revenue backlog provides significant visibility into our future performance and is a key indicator of sustained demand for our solutions and the degree of revenue predictability in our business. We expect this metric to grow due to continued membership growth, in particular from enterprise members, which accounted for approximately 60% of our committed revenue backlog as of June 30, 2019 and typically sign membership agreements with longer-term commitments. The average commitment term remaining under contracts included in our committed revenue backlog as of June 30, 2019, when weighted based on the dollar amount of the remaining commitment as of such date, was approximately 38 months.

 

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Contribution Margin

In evaluating the performance of our business, we supplement our GAAP results by evaluating our contribution margin both in the aggregate and on a location-by-location basis, both including and excluding non-cash GAAP straight-line lease cost. We also review the related contribution margins as a percentage of membership and service revenue.

What is contribution margin?

We define “contribution margin including non-cash GAAP straight-line lease cost” as membership and service revenue less location operating expenses (both as determined and reported in accordance with GAAP), adjusted to exclude non-cash stock-based compensation expense included in location operating expenses. We define “contribution margin excluding non-cash GAAP straight-line lease cost” as contribution margin including non-cash GAAP straight-line lease cost further adjusted to exclude non-cash GAAP straight-line lease cost.

“Location operating expenses” are our largest category of expenses and represent the costs associated with servicing members at our locations. These expenses consist primarily of lease costs (including non-cash GAAP straight-line lease cost), core operating expenses (such as utilities and internet), expenses associated with ongoing repairs and maintenance and the costs of supporting a dynamic community in our locations. Our community team salaries are included in location operating expenses and specifically include a dedicated member of the community team who is responsible for filling spaces after a location reaches maturity. Lastly, location operating expenses include the impact of support functions that are directly attributable to the operation of these locations, such as costs associated with billings, collections, purchasing, accounts payable functions and member technology.

Contribution Margin and Contribution Margin Percentage

(in millions)

 

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The following table reconciles our loss from operations (the most directly comparable financial measure calculated in accordance with GAAP) to our contribution margin for the periods presented:

 

     
    Year Ended December 31,     Six Months Ended
June 30,
 
(Amounts in thousands)   2016     2017     2018     2018     2019  

Loss from operations

  $ (396,274)     $ (931,834)     $ (1,690,999)     $ (677,859)     $ (1,369,450)  

Less: Other revenue (a)

    (1,744)       (19,106)       (124,415)       (49,815)       (186,648)  

Add:

         

Other operating expenses (b)

    —        1,677        106,788        42,024        81,189   

Pre-opening location expenses (b)

    115,749        131,324        357,831        156,983        255,133   

Sales and marketing expenses (b)

    43,428        143,424        378,729        139,889        320,046   

Growth and new market development expenses (b)

    35,731        109,719        477,273        174,091        369,727   

General and administrative expenses (b)

    115,346        454,020        357,486        155,257        389,910   

Depreciation and amortization (b)

    88,952        162,892        313,514        137,418        255,924   

Stock-based compensation expense (as included in location operating expenses) (c)

    2,032        18,718        22,793        6,420        25,953   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin including non-cash GAAP straight-line lease cost

    3,220        70,834        199,000        84,408        141,784   

Add: Non-cash GAAP straight-line lease cost (as included in location operating expenses) (d)

    92,723        162,313        268,125        117,178        198,124   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin excluding non-cash GAAP straight-line lease cost

  $ 95,943      $ 233,147      $ 467,125      $ 201,586      $ 339,908   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                         

As additional supplemental information, the following table also reconciles our membership and service revenue (calculated in accordance with GAAP) to our contribution margin for the periods presented:

 

     
    Year Ended December 31,     Six Months Ended
June 30,
 
(Amounts in thousands)   2016     2017     2018     2018     2019  

Membership and service revenue (e)

  $ 434,355     $ 866,898     $ 1,697,336     $ 713,956     $ 1,348,772  

Less: Location operating expenses (b)

    (433,167)       (814,782)       (1,521,129)       (635,968)       (1,232,941)  

Add: Stock-based compensation expense (as included in location operating expenses) (c)

    2,032       18,718       22,793       6,420       25,953  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin including non-cash GAAP straight-line lease cost

    3,220       70,834       199,000       84,408       141,784  

Add: Non-cash GAAP straight-line lease cost (as included in location operating expenses) (d)

    92,723       162,313       268,125       117,178       198,124  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin excluding non-cash GAAP straight-line lease cost

  $ 95,943     $ 233,147     $ 467,125     $ 201,586     $ 339,908  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                         

 

(a)

Relates to other revenue not related to membership and service revenue.

 

(b)

As presented on our consolidated statements of operations.

 

(c)

Represents the non-cash expense of our equity compensation arrangements for employees whose payroll is included in location operating expenses.

 

(d)

See “Why do we adjust for non-cash straight-line lease cost?” below for additional detail about non-cash GAAP straight-line lease cost. In connection with the preparation of the unaudited interim condensed consolidated financial statements as of and for the six months ended June 30, 2019, we adopted ASC 842, Leases, using the modified retrospective approach, as if such adoption had occurred on January 1, 2019. The results for reporting periods beginning after January 1, 2019 are presented in accordance with ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with ASC 840. Under ASC 840, we previously reported rent expense and tenancy costs including common area maintenance charges and real estate taxes. Tenancy costs are a non-lease component as defined in ASC 842, and in connection with the adoption of ASC 842, we have elected to not separate non-lease components in the determination of our lease obligation. Therefore the costs associated with common area maintenance charges and real estate taxes billed in addition to our base rent, where applicable, have been included as a component of our total operating lease costs in 2019. For comparability purposes, we have presented our base rent, incremental common area maintenance charges and real estate taxes as components of the total operating lease cost for the six months ended June 30, 2018 so they

 

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  are comparable to the six months ended June 30, 2019. Our discussion and analysis of our consolidated results of operations for the years ended December 31, 2016, 2017 and 2018 have not been revised, and still refer to “rent expense”. In any chart where the years ended December 31, 2016, 2017, and 2018 are presented with the six months ended June 30, 2018 and 2019, we refer to any rent expense recognized in accordance with ASC 840 as “lease cost”, so that the terminology across periods presented is consistent. See Note 4 to the unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for additional details surrounding the adoption of ASC 842.

 

(e)

Excludes other revenue not related to membership and service revenue.

Contribution Margin for the Six Months Ended June 30, 2019

(in millions)

 

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(1)

Adjusted lease cost represents lease costs (including base rent, common area maintenance charges and real estate taxes) for open locations, adjusted to exclude $198 million of non-cash GAAP straight-line lease cost relating to free rent periods and lease cost escalations included in location operating expenses.

 

(2)

Other adjusted location operating expenses represents location operating expenses other than lease costs, adjusted to exclude $26.0 million of stock-based compensation expense.

Why do we believe contribution margin is useful?

When used in conjunction with GAAP financial measures, we believe that our contribution margin measures are useful supplemental measures of operating performance because they allow us to analyze the core operating performance of our locations. Contribution margin is a non-GAAP measure of unit economics that can be determined on a location by location basis.

Contribution margin excluding non-cash GAAP straight-line lease cost allows management and our board of directors to monitor the performance of our locations based on our cash lease cost obligations. We believe this corresponds more closely over time to the revenue being generated from a location. Management and our board of directors also evaluate real estate lease transactions and develop internal budgets based upon this measure.

These measures account for the impact of support functions that are directly attributable to the operation of our locations, such as costs associated with billings, collections, purchasing and accounts payable functions. Our contribution margin measures exclude items that are not directly attributable to the membership and service revenue we realize from a given location in a relevant period, such as general and administrative expenses, pre-opening location expenses, sales and marketing expenses, growth and new market development expenses, other operating expenses, depreciation and amortization and other revenue.

 

   

General and administrative expenses are not incurred at the location level and are therefore not directly attributable to the operation of our locations.

 

   

Pre-opening location expenses consist of expenses (including all lease costs, which also include non-cash GAAP straight-line lease cost) incurred before a location opens for member operations, and are therefore not attributable to the operations of our existing open locations.

 

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Our sales and marketing efforts are primarily focused on the initial sales efforts when we open a location, as once a location reaches maturity, occupancy at that location has historically tended to be self-sustaining, and we do not incur significant sales and marketing expenses related to those locations.

 

   

Growth and new market development expenses, other operating expenses and other revenue are not directly attributable to the daily operation of our locations.

 

   

Depreciation and amortization relate primarily to the depreciation of our leasehold improvements, equipment and furniture. These capital expenditures are incurred and capitalized subsequent to the commencement of our leases and are depreciated over the lesser of the useful life of the asset or the term of the lease. The initial capital expenditures are assessed by management as an investing activity, and the related depreciation and amortization are non-cash charges that are not considered in management’s assessment of the daily operating performance of our locations. As a result, the impact of depreciation and amortization is excluded from our calculations of contribution margin.

We believe the use of contribution margin enables greater comparability of the operating performance of each of our locations from period to period. However, these measures are not an indicator of our performance as a whole and do not include all expenses necessary to operate our business. Contribution margin is not a measure of, nor does it imply, profitability under GAAP.

Why do we adjust for non-cash straight-line lease cost?

Our most significant location operating expense is lease cost. Under GAAP, lease cost is recognized on a straight-line basis over the life of the lease term. We evaluate our lease cost based on three key components:

 

   

“Lease cost contractually paid or payable” represents cash payments for base and contingent rent and common area maintenance and real estate taxes payable under our lease agreements, recorded on an accrual basis of accounting, regardless of the timing of when such amounts are actually paid.

 

   

“Amortization of lease incentives” represents the amortization of cash received for tenant improvement allowances and broker commissions (collectively, “lease incentives”), amortized on a straight-line basis over the terms of our leases.

 

   

“Non-cash GAAP straight-line lease cost” represents the adjustment, required under GAAP, to recognize the impact of “free rent” periods and lease cost escalation clauses on a straight-line basis over the terms of our leases. Non-cash GAAP straight-line lease cost, as required under GAAP, is separately evaluated as to the impact on our non-GAAP measures given the non-cash nature of the adjustment and the size of the currently negative impact it has on our non-GAAP measures.

We enter into leases with landlords that have an average initial term of approximately 15 years. These leases typically provide for a specified annual base rent, with annual escalations later in the term of the lease, as well as a reimbursement by us for costs such as common area maintenance charges and real estate taxes (collectively “lease costs”). We also typically negotiate a “free rent” period early in the term of the lease, in which we have possession of the lease space but are not required to pay any cash lease costs, and we use that free rent period to build out the space. This is a common arrangement in the real estate industry—the goal for the tenant is usually not to pay cash lease costs while the location is not yet generating revenue.

Under GAAP, we are required to record “free rent” periods and lease cost escalations on a straight-line basis over the term of the lease. In other words, we are required to record the total of all payments due under the lease evenly over the period of the lease, regardless of what our cash lease cost obligations may be in a particular period. This is referred to as “straight-lining of lease cost”. Given the magnitude of non-cash GAAP straight-line lease cost on the periods presented, and in order to facilitate a reader’s ability to assess the impact of this adjustment, we separately present our contribution margin both including and excluding non-cash GAAP straight-line lease cost so that a reader has full transparency relating to this significant adjustment. In opening new locations and in striving to maximize operating performance, we strive for a target contribution margin percentage of 30% over the lifetime of a location. The non-cash GAAP straight-line lease cost nets to zero over the life of a lease.

 

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Why do we not adjust for amortization of lease incentives?

While we separately present our contribution margin both including and excluding non-cash GAAP straight-line lease cost, we do not adjust for the benefit related to the amortization of lease incentives included in location operating expenses in our calculation of contribution margin. The cash we receive for lease incentives is used to offset the significant capital expenditure investment we make in scaling our location portfolio. Had we chosen to structure our lease agreements without these incentives and made the decision to instead finance that portion of our capital expenditures through a traditional loan or through draws under our credit facility, we believe that our overall lease cost payments would likely be reduced, and the incremental cash could have instead been used to pay down principal and interest, which payments would not have impacted our calculation of contribution margin. As a result, we believe that including the amortization of lease incentives in our calculations of contribution margin results in a useful supplemental measure of operating performance that is neutral regarding the financing decisions made with respect to our capital expenditures. We believe that including the impact of amortization of lease incentives also helps us compare the performance of locations across our portfolio, as in some cases, particularly in certain non-U.S. jurisdictions where we are opening new locations, we have not always been able to negotiate a tenant improvement allowance into the terms of our leases. The impact of the amortization of lease incentives can be found in Note 4 to our unaudited interim condensed consolidated financial statements and Note 17 to our audited annual consolidated financial statements, each included elsewhere in this prospectus.

How are sales and marketing expenses treated in the calculation of contribution margin?

Amounts included in “sales and marketing expenses” as presented on our consolidated statements of operations are primarily focused on the initial sales effort when we open a location, overall global brand awareness and general marketing efforts. Once a location reaches maturity, occupancy at that location has historically tended to be self-sustaining, as demonstrated by our high net membership retention rates. As a result, we do not incur significant sales and marketing expenses related to mature locations. While our sales and marketing expenses do include some costs associated with driving increases in occupancy at non-mature locations, management considers these expenses to be up-front investments in the start-up of our locations. Embedded within the community team that runs our locations on a daily basis are dedicated sales leads, who take over primary responsibility for sales and occupancy maintenance once a new location has reached an occupancy of approximately 80%. The compensation, sales incentives and related benefits expense for the dedicated sales leads are included in location operating expenses and are therefore reflected in our contribution margin measures.

How does contribution margin relate to the lifecycle of a lease?

As a result of the straight-lining of lease cost, the lease cost recognized for a location in accordance with GAAP will be the same for all periods of the lease. However, the vast majority of our leases are in the first half of their lease term and the membership and service revenue we recognize from a location will typically vary over the duration of a lease. We believe membership and service revenue typically corresponds more closely to lease cost absent the non-cash GAAP straight-line lease cost. For example, early in the life of a lease, membership and service revenue is generally lower (as we attempt to ramp up occupancy) while lease cost absent the non-cash GAAP straight-line lease cost is generally also lower (as cash rent is typically lower early in the life of the lease and our “free rent” period may also extend beyond the opening of the location). For new leases where we negotiated free rent during the year ended December 31, 2018, the average free rent period was approximately nine months. It has typically taken us approximately four to six months to build out a space and another three months to begin to fill the space with members to a level where we earn meaningful revenue at that location.

Over the remainder of the lease, membership and service revenue will typically continue to correspond more closely to lease cost absent the non-cash GAAP straight-line lease cost. While our lease arrangements are typically long-term in nature (with initial lease terms in the United States averaging approximately 15 years), with annual escalations later in the term of the lease, our membership agreements are typically shorter in duration (averaging less than two years), with annual price escalators triggered upon renewal. We therefore expect to recognize higher membership and service revenue as a result of price escalators and higher-priced membership agreements in the later stages of a lease, when we are also incurring additional cash lease cost due to the annual escalations in our lease agreements.

As a result of our significant growth in recent periods, which is marked by our entry into new leases with free rent periods at the outset of the lease term, the non-cash GAAP straight-line lease cost has generally decreased our

 

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contribution margin. Non-cash GAAP straight-line lease cost included in location operating expenses increased from $117.2 million for the six months ended June 30, 2018 to $198.1 million for the six months ended June 30, 2019. Over the same period, our consolidated locations grew from 279 as of June 30, 2018 to 507 as of June 30, 2019.

For our mature locations, the impact of straight-lining of lease cost is typically not as significant. However, 70% of our locations as of June 30, 2019 were not mature, and many of the leases for these locations are in a “free rent” period. Once the maturity of our leases outpaces the growth of our portfolio of leases, we expect that the impact of straight-lining of lease cost will have the effect of increasing (rather than significantly decreasing, as it has in the past) contribution margin.

How has contribution margin trended over time?

Contribution Margin and Contribution Margin Percentage

(in millions)

 

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The following table reconciles our loss from operations (the most directly comparable financial measure calculated in accordance with GAAP) to our contribution margin for the periods presented:

 

   
    Three Months Ended  
(Amounts in thousands)  

June 30,

2017

    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
    September 30,
2018
    December 31,
2018
    March 31,
2019
    June 30,
2019
 

Loss from operations

  $ (139,230)     $ (163,729)     $ (507,459)     $ (296,109)     $ (381,750)     $ (448,330)     $ (564,810)     $ (639,720)     $ (729,730)  

Less: Other revenue (a)

    (444)       (6,789)       (11,503)       (16,708)       (33,107)       (28,302)       (46,298)       (100,202)       (86,446)  

Add:

                 

Other operating expenses (b)

                1,677       15,161       26,863       31,631       33,133       36,163       45,026  

Pre-opening location expenses (b)

    25,034       29,525       49,102       73,232       83,751       97,530       103,318       112,798       142,335  

Sales and marketing
expenses (b)

    23,740       41,150       59,816       62,811       77,078       109,559       129,281       150,999       169,047  

Growth and new market development expenses (b)

    19,518       26,853       46,128       58,679       115,412       118,510       184,672       141,844       227,883  

General and administrative expenses (b)

    45,979       52,665       318,773       78,194       77,063       90,696       111,533       218,537       171,373  

Depreciation and amortization (b)

    38,005       42,166       51,494       62,043       75,375       77,590       98,506       124,855       131,069  

Stock-based compensation expense (as included in location operating
expenses) (c)

    675       810       16,570       2,833       3,587       3,071       13,302       22,657       3,296  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin including non-cash GAAP straight-line lease cost

    13,277       22,651       24,598       40,136       44,272       51,955       62,637       67,931       73,853  

Add: Non-cash GAAP straight-line lease cost (as included in location operating expenses) (d)

    39,049       42,524       47,997       54,992       62,186       69,403       81,544       102,153       95,971  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin excluding non-cash GAAP straight-line lease cost

  $ 52,326     $ 65,175     $ 72,595     $ 95,128     $ 106,458     $ 121,358     $ 144,181     $ 170,084     $ 169,824  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                                                         

As additional supplemental information, the following table also reconciles our membership and service revenue (calculated in accordance with GAAP) to our contribution margin for the periods presented:

 

   
    Three Months Ended  
(Amounts in thousands)   June 30,
2017
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
    September 30,
2018
    December 31,
2018
    March 31,
2019
    June 30,
2019
 

Membership and Service Revenue (e)

  $ 197,897     $ 234,337     $ 271,813     $ 325,455     $ 388,501     $ 453,984     $ 529,396     $ 628,134     $ 720,638  

Less: Location operating expenses (b)

    (185,295)       (212,496)       (263,785)       (288,152)       (347,816)       (405,100)       (480,061)       (582,860)       (650,081)  

Add: Stock-based compensation expense(as included in location operating expenses) (c)

    675       810       16,570       2,833       3,587       3,071       13,302       22,657       3,296  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin including non-cash GAAP straight-line lease cost

    13,277       22,651       24,598       40,136       44,272       51,955       62,637       67,931       73,853  

Add: Non-cash GAAP straight-line lease cost (as included in location operating expenses) (d)

    39,049       42,524       47,997       54,992       62,186       69,403       81,544       102,153       95,971  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution margin excluding non-cash GAAP straight-line lease cost

  $ 52,326     $ 65,175     $ 72,595     $ 95,128     $ 106,458     $ 121,358     $ 144,181     $ 170,084     $ 169,824  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                                                         

 

 

(a)

Relates to other revenue not related to membership and service revenue.

 

(b)

As presented on our consolidated statements of operations.

 

(c)

Represents the non-cash expense of our equity compensation arrangements for employees whose payroll is included in location operating expense.

 

(d)

See “Why do we adjust for non-cash straight-line lease cost?” above for additional detail about non-cash GAAP straight-line lease cost.

 

(e)

Excludes other revenue not related to membership and service revenue.

 

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What is our target contribution margin percentage?

Over the lifetime of a location, our target contribution margin percentage is 30%. Since the straight-lining of lease cost nets to zero over the lifetime of a lease, our target contribution margin percentage reflects zero impact from straight-lining of lease cost.

What are the limitations of using our non-GAAP measures as supplemental measures?

Our non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:

 

   

they do not reflect changes in, or cash requirements for, our working capital needs;

 

   

they do not reflect our interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

   

they do not reflect our tax expense or the cash requirements to pay our taxes;

 

   

they do not reflect historical capital expenditures or future requirements for capital expenditures or contractual commitments;

 

   

although non-cash GAAP straight-line lease costs are non-cash adjustments, these charges generally reflect amounts we will be required to pay our landlords in cash over the lifetime of our leases;

 

   

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

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these non-GAAP measures do not reflect any cash requirements for such replacements.

How do we intend to enhance the reliability and relevance of our non-GAAP measures?

Management and our board of directors are committed to making our non-GAAP measures reliable, transparent and useful to investors and management. Upon completion of this offering, our audit committee, which has the authority pursuant to its charter to use outside advisors as appropriate, will assume responsibility for overseeing the presentation and disclosure of our non-GAAP measures. Such oversight responsibilities will include understanding how management utilizes non-GAAP measures to evaluate performance and whether our non-GAAP measures are consistently prepared and presented from period to period. Upon completion of this offering, presentation and disclosure of our non-GAAP measures will be further subject to documented disclosure controls and procedures, and we intend to have in place a written non-GAAP policy that our audit committee will oversee which, among other things, we expect to address the determination of which charges and credits should be excluded from our non-GAAP measures.

 

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Our Business Model

We monetize our global platform through a variety of solutions, mainly by selling memberships but also by providing ancillary value-added products and services to our members and extending our platform beyond offering workspace.

Currently, we derive the majority of our revenue from recurring monthly membership fees, which accounted for approximately 83% of total revenue during the six months ended June 30, 2019. Our range of workspace solutions enables us to serve the distinct needs of individuals and organizations of all sizes, from global citizens to global enterprises. Our membership and service revenue also includes revenue from business services purchased by our members, such as conference rooms and printing credits, and from commissions on the sale to our members of additional products and services offered by us or in conjunction with partners, which, together, accounted for approximately 5% of total revenue during the six months ended June 30, 2019.

The remaining 12% of total revenue during the six months ended June 30, 2019 represented revenue we generated from additional products and services that we deliver through our suite of We Company offerings. These services, which are dedicated to improving our members’ experience, allow us to further connect with our members, driving higher retention, which attracts valuable third-party partners who can utilize our platform to reach our large member base.

Lifecycle of a Location and Factors Affecting Our Performance

Our business is built on a global platform of physical locations where we offer access to workstations in exchange for membership fees. Over the past several years, we have demonstrated a track record of scaling our geographic footprint and our membership base while monetizing our open locations, in particular as they reach maturity. The lifecycle of a location refers to the process by which we source, build out and operate the location through our global-local playbook. We categorize this process into five phases: find, sign, build, fill and run.

 

 

 

LOGO

 

As of June 1, 2019. “Find” phase includes locations in our pipeline for which a lease agreement has not been signed. Historically, not all locations in the “Find” phase will become the subject of a signed lease agreement. The number of workstations in the “Find” phase represents workstation capacity at locations that we expect to become open locations based on our actual conversion rate of locations in the “Find phase” of our pipeline in the 12 months ended June 30, 2019. “Sign” phase includes locations that are the subject of a lease agreement that has been signed but with respect to which we have not taken possession and no lease cost expense has been recognized. “Build” phase includes locations that are the subject of a lease agreement that has been signed and with respect to which we have taken possession and lease cost expense has been recognized, but which have not yet opened to members. “Fill” phase includes locations that have been open to members for 24 months or less. “Run” phase includes locations that have been open to members for more than 24 months.

 

(1)

For locations in the Find, Sign or Build phase, the number of workstations presented above represents our estimate of workstation capacity based on building information modeling (BIM) software that applies our design criteria for a given market to available plans and building scans.

 

(2)

For locations in the Fill and Run phase, the number of workstations presented above represents the number of workstations available for sale and immediate use by members.

 

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Our locations have distinct revenue, expense and capital cost profiles through each phase of their lifecycle. First, we incur growth and new market development expenses associated with our real estate team that is responsible for finding new locations and negotiating lease terms. Once we take possession of a space, we incur growth and new market development expenses associated with our design and construction teams as well as capital costs related to building out our spaces. In this phase, we also begin our efforts to fill our spaces, and we incur sales and marketing expenses associated with our sales teams, advertising campaigns and fees paid to brokers who sell memberships, particularly to enterprise organizations. After a location opens, we begin generating revenue. Once a location has been open to members for more than 24 months, occupancy is generally stable and the location typically generates a recurring stream of revenue that covers our location operating expenses and contributes to the recoupment of our initial investment in the location.

Find

 

 

822,000 potential workstations (43% of total) as of June 1, 2019

 

 

Locations in our pipeline for which leases have not been signed

 

 

Growth and new market development expenses (real estate team) are incurred

Our real estate team is responsible for sourcing, underwriting, negotiating and entering into leases for spaces that fit our investment criteria within our existing and new markets.

We maintain a broad database of potential real estate opportunities, and we consider any opportunity for which a draft term sheet has been exchanged or a lease is being negotiated to be within our potential location pipeline.

Sign

 

 

258,000 potential workstations (13% of total) as of June 1, 2019

 

 

Leases have been signed, but we have not yet taken possession of the location

 

 

No revenue or contribution margin is generated

 

 

Generally, no capital expenditures are incurred

 

 

Investments generate losses as growth and new market development expenses (real estate team) are incurred

Once we identify a desirable location, we endeavor to negotiate favorable lease terms. The terms often include free rent periods, which we primarily use to transform a traditional office space into a WeWork location, and tenant improvement allowances, under which a landlord reimburses us for all or a portion of the capital expenditures we incur during this transformation.

As we scale, we intend to pursue capital-efficient partnerships with building owners through participating leases as an alternative to standard leases. Under a participating lease, the landlord typically pays or reimburses us for the full build-out of the space. Additionally, we generally do not pay a specified annual rent, but rather rent is determined based on revenues or profits from the space. We also plan to continue to enter into management agreements, as we

 

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have done in India, under which the building owner funds all capital expenditures to build out the space to our design specifications and maintains full responsibility for the space, while we function as the manager and receive an agreed-upon management fee.

 

Number of Leases Signed(1)

 

  

Usable Square Feet Added(2)

 

(in millions)

LOGO    LOGO

 

(1)

Represents number of leases signed in the years ended December 31, 2016, 2017 and 2018. Leases signed includes initial lease executions only. Excludes amendments executed for expansion of premises and leases acquired through acquisitions, including our acquisition of naked Hub in 2018.

 

(2)

Represents usable square feet added for workstations in the years ended December 31, 2016, 2017 and 2018 and the last twelve months ended June 30, 2019, including through amendments executed for expansion of premises. Excludes usable square feet acquired through acquisitions, such as naked Hub.

Our ability to continue to grow depends not only on the availability of new locations, but also on our ability to secure those new locations on attractive lease terms. The terms of our lease agreements, such as favorable tenant improvement allowances that reduce our net capital expenditures in the build phase, drive the visibility, timing and magnitude of our expected cash flows and future capital needs. Our ability to continue to grow our global footprint efficiently, through favorable lease terms, will materially impact our financial performance.

Build

 

 

239,000 potential workstations (13% of total) as of June 1, 2019

 

 

Take possession of a location

 

 

No revenue or contribution margin is generated

 

 

Majority of capital expenditures are incurred

 

 

Investments generate losses as we incur growth and new market development expenses (related to non-capitalized component of design and construction teams) and sales and marketing expenses (to drive future memberships)

We aim to develop vibrant and welcoming spaces for our members that are cost-efficient to build and cost-effective to maintain. Even before we take possession of a space, we engage with engineers, designers, architects, layout experts and decorators to be ready to start the construction of a space the moment we take possession. As we have refined this process, we have been able to significantly reduce the time we take to build-out a location, with locations typically opening approximately four to six months after we take possession.

We incur the majority of our gross capital expenditures to build out our spaces during this phase. Since 2015, we have launched a number of initiatives to reduce our net capex per workstation added, which represents our gross capital expenditures less the tenant improvement allowances we are entitled to receive from landlords. These initiatives include developing a global supply chain, clustering in cities allowing us to leverage economies of scale in those cities and bringing certain functions and technologies in house. Our ability to maintain or reduce our net capex per workstation added will have a significant impact on the overall investment required to continue to grow our business at an accelerated pace.

 

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Average Months to Open from Possession Date

 

  

Net Capex per Workstation Added (3)

 

LOGO   

LOGO

 

 

 

(1)

Based on “White Box” build defined as standard configuration of space and no demolition. While the amount of time required to open a new location depends on a number of factors, including availability of the premises and the level of construction required, our locations typically open approximately four to six months after we take possession.

 

(2)

Based on independent third-party survey of brokers in top geographic markets, weighted based on the geographic mix of our membership base as of June 1, 2019.

 

(3)

Net capex per workstation added represents gross capital expenditures for projects (excluding capitalized costs unrelated to sellable workstation capital projects and internal capitalized payroll) completed in the period presented, regardless of when the costs were incurred, less the total tenant improvement allowance provided per the terms of the leases associated with the projects completed in the period presented, regardless of when the cash collection for such tenant improvement allowance occurred, divided by the total number of workstations delivered in connection with the projects completed in the period presented. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Expenditures and Tenant Improvement Allowances” for additional information about this metric. Net capex per workstation added for the first half of 2019 reflects gross capital expenditures of approximately $0.8 billion, less tenant improvement allowances of approximately $0.4 billion divided by 106,000 workstations delivered, in each case in connection with projects completed during the period from January 1, 2019 to June 30, 2019. Net capex per workstation added for 2017-2018 reflects gross capital expenditures of approximately $2.9 billion, less tenant improvement allowances of approximately $1.5 billion, divided by 352,000 workstations delivered, in each case in connection with projects completed during the period from January 1, 2017 to December 31, 2018. Net capex per workstation added for 2015-2016 reflects gross capital expenditures of approximately $1.0 billion, less tenant improvement allowances of approximately $0.5 billion, divided by 92,000 workstations delivered, in each case in connection with projects completed during the period from January 1, 2015 to December 31, 2016. Net capex per workstation added for 2014 reflects gross capital expenditures of approximately $0.2 billion, less tenant improvement allowances of approximately $0.1 billion, divided by 14,000 workstations delivered, in each case in connection with projects completed during the period from January 1, 2014 to December 31, 2014.

During the build phase, locations incur pre-opening location expenses consisting primarily of lease cost expense. Given the impact of free-rent periods, lease cost expense recorded in accordance with GAAP typically exceeds cash payments required to be made during this phase. Of the lease cost expense included within pre-opening location expenses in the year ended December 31, 2018, approximately 85% was non-cash expense. We also begin to incur sales and marketing expenses during this phase as our global-local sales team begins to sell memberships.

Our ability to continue to grow our platform at an accelerated pace depends on our ability to quickly and cost-effectively build out new locations and sell memberships prior to opening. Our ability to maintain or reduce our net capex per workstation added and our member acquisition costs will have a significant impact on the overall investment required to continue to grow our business at an accelerated pace.

 

 

Fill

 

 

425,000 workstations (22% of total) as of June 1, 2019

 

 

Location opens and ramps up (0-24 months)

 

 

Revenue is generated

 

 

Contribution margin is generated once breakeven occupancy is achieved

 

 

Generally, limited capital expenditures incurred related to new floor openings

 

 

Tenant improvement reimbursements are generally received

During this phase, we focus on optimizing utilization of space at our locations by driving membership sales using global sales teams, local community teams, broker partners and our online presence to help fill our spaces. We start to generate revenue and contribution margin when we open our space to members. We believe it takes 24 months for a location to hit maturity—the point at which most of the floors will have been open for 18 months and occupancy will have stabilized for the location.

 

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Enterprise Membership Percentage

 

 

Occupancy by Year of Location Opening 

 

LOGO   LOGO

Our ability to monetize our growing platform depends on our ability to grow our membership base. Over time, our sales and marketing efforts have become more efficient and we have been improving the speed at which we fill our locations, as we are increasingly targeting enterprises who typically sign membership agreements with longer-term commitments. Enterprises often use third-party brokers to help them manage their real estate needs. As we intend to further grow our enterprise membership base, we expect to continue making use of third-party brokers to help us attract new enterprise members, and we expect that sales and marketing expenses associated with broker referral fees may grow in line with these efforts. Our enterprise membership percentage increased from 28% as of December 31, 2017 to 40% as of June 30, 2019. We also expect the use of discounts to help drive initial occupancy and longer-term commitments.

Run

 

 

180,000 workstations (9% of total) as of June 1, 2019

 

 

Location matures and occupancy has stabilized (24+ months)

 

 

Revenue and contribution margin are generated

 

 

Limited capital expenditures incurred related to new floor openings

Once a location has been open to members for more than 24 months, which we define as a mature location, occupancy is generally stable, our initial investment in build-out and sales and marketing to drive member acquisition is complete and the location typically generates a recurring stream of revenues and contribution margin and is representative of our “steady-state” performance. As of June 1, 2019, our occupancy stabilized at an average of approximately 89% after 18 months and generally remained at that level after 24 months, and mature locations comprised 30% of our total fleet of open locations.

At this phase, the community team, which includes a dedicated sales lead at each of our locations, is primarily responsible for maintaining occupancy in our locations, which reduces our reliance on our centralized sales and marketing teams. The community team strives to foster a positive and engaging experience for our members, which we believe drives high retention rates across our member community. The chart below demonstrates our net membership retention rate, which measures the net impact of members who added or canceled WeWork memberships during a given period. For members that had joined our community as of December 1, 2017, our net membership retention rate in the period from December 1, 2017 to December 1, 2018 was 119%. Our net membership retention rate among enterprise members for that same period was nearly 200%.

 

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Membership Retention

 

LOGO

 

(1)

Our net membership retention rate of 119% for the period from December 1, 2017 to December 1, 2018 illustrates our ability to increase the penetration of our existing members over that period. We calculate our net membership retention rate for a given period (in this case, from December 1, 2017 to December 1, 2018) by dividing (1) the total number of WeWork memberships as of the last day in the period from all members that had at least one WeWork membership as of the first day of the period by (2) the total number of WeWork memberships from those same members as of the first day of the period. This member-based net retention rate reflects any expansion in WeWork memberships and is net of contraction or attrition over the period, but excludes WeWork memberships from new distinct members added during the period. Our net membership retention rate also excludes WeWork memberships attributable to IndiaCo locations.

As we have scaled globally, we continue to realize operating efficiencies due to economies of scale and by leveraging technology solutions and our global-local playbook.

During the “run” phase, we incur expenses for ongoing repairs and maintenance, which are reflected in our location operating expenses. In addition, we may incur minimal capital expenditures related to the redevelopment of our spaces.

Our ability to continue to generate a recurring stream of revenues and contribution margin in this phase depends on the ability of our community teams to maintain a positive membership experience while efficiently running the locations.

 

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Developed Markets Case Study(1)

The financial performance of our locations generally improves as they progress through the phases of the lifecycle of a location outlined above, ultimately culminating with our mature locations generating a recurring stream of revenues and contribution margin. The more locations we strategically cluster in a given city, the larger and more dynamic our community becomes. This clustering effect leads to greater brand awareness for our offerings and allows us to realize economies of scale, which together with increases in tenant improvement allowances, lowers our net capex per workstation added and drives stronger monetization of our global platform. Our growth in recent years in the markets where we had the highest number of memberships has been accompanied by a corresponding increase in run-rate revenue and contribution margin percentage, as well as a decrease in net capex per workstation added.

 

 

 

Memberships  

Run-Rate Revenue

 

(in millions)

 

Net Capex Per Workstation Added

 

LOGO

  LOGO   LOGO

 

(1)

“Developed markets” includes our seven largest markets by memberships as of June 1, 2017, which represents 29 cities with open locations as of June 1, 2019, including Boston, Los Angeles, Santa Monica, Pasadena, Irvine, Manhattan Beach, Long Beach, Burbank, West Hollywood, Costa Mesa, Culver City, El Segundo, Playa Vista, London, New York, Astoria, Brooklyn, Long Island City, San Francisco, Oakland, Mountain View, San Mateo, Mill Valley, Berkeley, Emeryville, Chicago, Washington, D.C., McLean and College Park. Excludes our corporate headquarters in New York, San Francisco and London, as well as two WeLive locations, as performance of these locations is not representative of our open locations.

Our contribution margin excluding non-cash GAAP straight-line lease cost in these developed markets has continued to grow as a percentage of membership and service revenue over this time period and was approximately nine percentage points higher than for our open locations on a consolidated basis for the three months ended June 30, 2019. Overall, membership and service revenue from these developed markets accounted for approximately half of our total membership and service revenue for the six months ended June 30, 2019.

Future Growth

The strong unit economics demonstrated at our mature locations, together with our reduced net capex per workstation added, increasing committed revenue backlog driven by our growing enterprise membership percentage and low market penetration give us the conviction to continue to invest in finding, building and filling buildings in order to drive long-term value creation.

We expect to continue to fund these growth investments from cash on hand and by raising additional capital. The timing at which we may achieve profitability depends on a variety of factors, including economic and competitive conditions in the markets where we operate and seek to expand, the pace at which we choose to grow and our ability to add new products and services to our platform.

Key Factors Affecting the Comparability of Our Results

Global Expansion

We have embarked on a strategic worldwide expansion program to grow our platform by opening locations in new markets as well as opening new locations in markets where we currently operate.

 

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As we continue to grow our global platform in new markets, certain metrics may be impacted by the geographic mix of our platform. For example, average revenue per WeWork membership has declined as we have expanded internationally into lower-priced markets, which is a trend we expect could continue in the near-term. Also, our overall contribution margin percentage may decline as certain lower-margin markets, including markets with a larger target member population, such as China, become a larger portion of our portfolio. For example, excluding the China Region, our contribution margin percentage for the six months ended June 30, 2019 would have been approximately three percentage points higher.

In addition, as we enter into more management agreements and participating leases for international locations, our contribution margin percentages may decline as we share some of our contribution margin with landlords in exchange for those landlords funding our capital expenditures at a particular location. Under a participating lease, the landlord typically pays or reimburses us for the full build-out of the space and we generally do not pay a specified annual rent, but rather rent is determined based on revenues or profits from the space. Similarly, in a management agreement, the building owner funds all capital expenditures to build out the space to our design specifications and maintains full responsibility for the space, while we function as the manager and receive an agreed upon management fee. In contrast to standard lease arrangements where we receive the full benefit of the future contribution margin from a given location, under these alternative arrangements, we share portions of this future contribution margin with the landlord. The percentage of open locations subject to such alternative arrangements was approximately 15% as of June 1, 2019. Our contribution margin metrics may also be impacted by the speed at which we can open locations and stabilize occupancy at those locations, as well as the average revenue per WeWork membership that we generate.

Our net capex per workstation added also varies by geography, especially given our expansion into markets where tenant improvement allowances are more or less common.

Acquisition Activity and Expanding Our Solutions, Products and Services

We have recently launched or acquired new solutions, products and services that we believe will add value to our members and have the potential to become meaningful revenue streams in the future.

We intend to continue selectively pursuing strategic partnerships and acquisitions to expand our global platform. If these acquisition and product expansion efforts do not scale successfully, it may impact our growth prospects and our ability to achieve profitability.

Recent Developments

Debt Financing Transactions

We aim to optimize our access to the capital markets and seek to have broad-based relationships with financial institutions. In connection with this offering, we are expanding our relationships with banks from across the globe. In particular, in August, we entered into a commitment letter with JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, Goldman Sachs Lending Partners LLC, Bank of America, N.A., BofA Securities, Inc., Barclays Bank PLC, Citigroup Global Markets Inc., Credit Suisse AG, Cayman Islands Branch, Credit Suisse Loan Funding LLC, HSBC Bank USA, National Association, HSBC Securities (USA) Inc., UBS AG, Stamford Branch, UBS Securities LLC, Wells Fargo Bank, National Association and Wells Fargo Securities, LLC, who have committed to provide a new senior secured credit facility and are affiliates of the underwriters. The commitment letter provides for senior secured financing of up to $6.0 billion (the “2019 Credit Facility”) that is expected to close concurrently with the closing of this offering. The 2019 Credit Facility will consist of (1) a letter of credit reimbursement facility (the “2019 Letter of Credit Facility”) in the aggregate amount of $2.0 billion available from the closing date of the 2019 Credit Facility to the later of the third anniversary of the completion of this offering yielding gross proceeds of at least $3.0 billion and December 31, 2022 and (2) a delayed draw term loan facility (the “Delayed Draw Term Facility”) in the aggregate principal amount of up to $4.0 billion. Subject to compliance with the covenants in our other debt agreements, to the extent then applicable, and the satisfaction of certain conditions (as described below), the Delayed Draw Term Facility will be available from the closing date of the 2019 Credit Facility until June 30, 2022; provided that:

 

   

prior to receipt of financial statements for the fiscal quarter ending June 30, 2020, only $1.0 billion of the Delayed Draw Term Facility will be available;

 

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upon receipt of financial statements for the fiscal quarter ending June 30, 2020, an additional $1.5 billion of the Delayed Draw Term Facility will become available; and

 

   

upon receipt of financial statements for the fiscal year ending December 31, 2020, the remaining $1.5 billion of the Delayed Draw Term Facility will become available.

Currently, the debt and lien covenants under the indenture governing the senior notes would restrict our ability to draw the second and third tranches of the Delayed Draw Term Facility described above. We expect to determine how and when we will address the restrictions in these covenants under the indenture following the closing of this offering. We may, in our discretion, explore a variety of new financing and/or refinancing transactions, including with respect to the senior notes and/or any term loans funded under the Delayed Draw Term Facility. As of the date of this prospectus, no decisions in that respect have been made.

In addition, the 2019 Letter of Credit Facility would also permit us to seek an increase in the commitments under the Letter of Credit Facility of up to $500 million at any time after December 31, 2020, subject to the receipt of commitments from existing or additional financial institutions and other conditions.

The initial availability of the 2019 Letter of Credit Facility and the funding of the first tranche of the Delayed Draw Term Facility on the closing date of the 2019 Credit Facility will be subject to the negotiation and execution of definitive documentation and the satisfaction of certain conditions, including (1) the completion of this offering and (2) the termination and prepayment of all commitments outstanding under our existing bank facilities, other than the rollover of certain letters of credit to the 2019 Credit Facility. The 2019 Credit Facility will also require WeWork Companies LLC and its restricted subsidiaries to comply with certain minimum contribution margin, liquidity and net cash flow financial covenants. Under the minimum liquidity covenant, WeWork Companies LLC will be required to maintain a minimum amount of unrestricted cash (including cash collateral supporting the 2019 Letter of Credit Facility) of $2.5 billion through the fiscal quarter ending June 30, 2021, $3.0 billion for the fiscal quarter ending September 30, 2021 and $3.5 billion for the fiscal quarter ending December 31, 2021 and any fiscal quarter thereafter.

The Delayed Draw Term Facility will mature on the later of the third anniversary of the completion of this offering and December 31, 2022 and will amortize in an amount per quarter equal to 0.25% of the original principal amount of all funded delayed draw term loans (the “Delayed Draw Term Loans”), beginning on the last day of the first fiscal quarter ending after the first anniversary of the initial delayed draw funding date.

WeWork Companies LLC is the borrower under the 2019 Credit Facility, which will be guaranteed by the domestic wholly-owned subsidiaries of WeWork Companies LLC, subject to certain exceptions. Subject to compliance with the covenants in the indenture governing the senior notes, WeWork Companies LLC may designate one or more of its foreign subsidiaries as borrowers under the 2019 Credit Facility, and borrowings by any such foreign subsidiary borrowers will be guaranteed by the domestic subsidiary guarantors and certain material foreign subsidiaries in jurisdictions to be agreed. The 2019 Credit Facility will be secured by substantially all the assets of WeWork Companies LLC and the domestic subsidiary guarantors (and, in the case of borrowings by any foreign subsidiary guarantor, by substantially all the assets of the foreign subsidiary borrowers and guarantors), subject to customary exceptions. In addition, WeWork Companies LLC will be required to deposit cash collateral as security for the Letter of Credit Facility in an amount equal to the face amount of letters of credit issued under the facility.

Borrowings under the Delayed Draw Term Loans are expected to bear interest at a rate per annum equal to, at our option, (i) a base rate that will be no less than 3.0% (the “adjusted base rate”) plus an applicable margin of 3.75% or (ii) a Eurodollar date that will be no less than 2.0% plus an applicable margin of 4.75%. Interest on any drawn letter of credit will be payable at a rate per annum equal to the adjusted base rate plus an applicable margin of 1.0% to 1.5%, depending on average utilization. WeWork Companies LLC will pay letter of credit fees on the face amount of each letter of credit equal to 1.0%, as well as customary fronting fees. WeWork Companies LLC will also pay customary commitment fees on the average undrawn daily amount of the commitments under the Delayed Draw Term Facility and the Letter of Credit Facility. With respect to the $1.0 billion of Delayed Draw Term Loan commitments that are available on the closing date, we will be subject to a ticking fee for the period from the date that is 90 days after the closing date until the earlier to occur of (x) the date on which all applicable Delayed Draw Term Loan commitments are funded and (y) the commitment termination date, equal to the adjusted Eurodollar rate plus 4.75% on the average undrawn daily amount of the applicable Delayed Draw Term Loan commitments.

 

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The definitive documentation for the 2019 Credit Facility will contain customary repayment provisions, representations, warranties, events of default and affirmative covenants. The definitive documentation for the 2019 Credit Facility will also contain negative covenants limiting our ability and the ability of our restricted subsidiaries to take certain actions, including, without limitation, incur indebtedness (including guarantee obligations), incur liens, enter into mergers or consolidations, dispose of assets, issue dividends and other payments in respect of capital stock, make acquisitions, make investments, loans and advances, enter into transactions with affiliates or change our line of business. The ARK entities and our regional joint ventures are expected to be designated as unrestricted subsidiaries under the 2019 Credit Facility.

The closing of the 2019 Credit Facility is expected to occur concurrently with the closing of this offering. In addition to termination of our existing bank facilities, we intend to use the net proceeds from the 2019 Credit Facility to finance our working capital needs and for general corporate purposes.

Reorganization Transactions

The We Company was incorporated under the laws of the state of Delaware in April 2019 as a direct wholly owned subsidiary of WeWork Companies Inc. In July 2019, as a result of various reorganization transactions, The We Company became the holding company of all of the direct and indirect subsidiaries that were held by WeWork Companies Inc. prior to the reorganization transactions and the then-stockholders of WeWork Companies Inc. became the stockholders of The We Company. Prior to the reorganization transactions, The We Company did not engage in any business or other activities except in connection with its incorporation.

As a general matter, the reorganization transactions resulted in us having a corporate organizational structure similar to a structure commonly referred to as an “UP-C” structure. However, unlike in many UP-C structures, no holder of a profits interest or other interest in the resulting partnership is entitled to a “tax receivable” payment or other similar payment by us in respect of tax attributes that may accrue to us upon the exchange of such profits interests or other interests for cash or shares of our common stock. The reorganization transactions were undertaken as a result of our belief that the holding company structure created by the reorganization transactions would enable us to realign our existing and future business lines into different sister subsidiaries. Such a structure allows us to separate our WeWork space-as-a-service offering from the rest of our existing businesses, and will also allow us to hold separately any future business areas into which we may expand. We also believed that creating a holding company structure might reduce the risk that liabilities of any of our businesses, including such business’ debts or other obligations, would be attributed to or restrictive of the operations of any of our other businesses. We believed that the reorganization transactions would facilitate our expansion by providing a more flexible structure for acquiring other businesses or entering into partnerships or collaborations while continuing to keep the operations of our existing WeWork space-as-a-service offering separate, as opposed to “above” any future acquired entities. We also considered that the reorganization transactions would facilitate the issuance of profits interests in the We Company Partnership, resulting in a new structure for certain management incentive compensation, as further described in “Certain Relationships and Related Party Transactions—Operating Partnership”.

ARK/WPI Combination

In August 2019 we combined ARK, our recently launched global real estate acquisition and management platform, with our separate existing real estate investment platform for the WPI Fund (the “ARK/WPI combination”). As a result of the ARK/WPI combination, all of the real estate acquisition and management activities of The We Company have been combined into a single platform comprising multiple real estate acquisition vehicles (including the ARK Master Fund and the WPI Fund) managed by a single sponsor vehicle majority-owned and consolidated by us. We account for our share of the underlying real estate acquisition vehicles and joint ventures as unconsolidated investments. See “Business—Our Organizational Structure—ARK” for a more detailed description of the ARK/WPI combination and the organizational structure of ARK.

Acquisitions

In May 2019, we acquired Managed by Q, an office management platform. In July and August 2019, we acquired Waltz, an access controls solution, Prolific Interactive, a mobile application developer, Space IQ, a real estate planning platform, and Spacious Technologies, a co-working company.

 

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Components of Results of Operations

We assess the performance of our locations differently based on whether the revenues and expenses of the location are consolidated within our results of operations (“consolidated locations”) or whether the revenues and expenses of the location are not consolidated within our results of operations but we are entitled to a management fee for our services, such as locations (“IndiaCo locations”) operated by WeWork India Services Private Limited (“IndiaCo”). The term “locations” includes only consolidated locations when used in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations” but includes both consolidated locations and IndiaCo locations when used elsewhere in this prospectus.

Revenue

Revenue includes membership and service revenue as well as other revenue as described below.

Membership revenue represents membership fees, net of discounts, from sales of WeWork memberships and on-demand memberships and revenue associated with our WeLive offering. We derive a significant majority of our revenue from recurring membership fees. The price of each membership varies based on the type of workplace solution selected by the member, the geographic location of the space occupied, and any monthly allowances for business services, such as conference room reservations and printing or 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.

Service revenue primarily includes billings to members for ancillary business services in excess of the monthly allowances mentioned above. Services offered to members include access to conference rooms, printing, photocopies, initial set-up fees, phone and IT services, parking fees and other services.

Service revenue also includes commissions we earn from third-party service providers. We offer access to a variety of business and other services to our members, often at exclusive rates, and receive a percentage of the sale when one of our members purchases a service from a third-party. These services range from business services to lifestyle perks. Service revenue is recognized on a monthly basis as the services are provided.

Service revenue does not include any revenue recognized by We Company offerings. For example, revenue from services provided by Meetup and Flatiron School is not included in our service revenue, even if those services have been delivered to a member. All revenue recognized by our We Company offerings not related to our workplace solutions is included in other revenue.

Other revenue includes revenue from our Powered by We solution performed and recognized using the percentage-of-completion method based primarily on contract cost incurred to date compared to total estimated contract cost, as well as income generated from sponsorships and ticket sales from branded events and revenue generated by any new solutions or services not directly related to the membership and service revenue earned through the operation of our workplace solutions, such as Flatiron School and Meetup.

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:

 

   

Lease cost contractually paid or payable represents cash payments for base and contingent rent and common area maintenance and real estate taxes payable under our lease agreements, recorded on an accrual basis of accounting, regardless of the timing of when such amounts were actually paid.

 

   

Amortization of lease incentives represents the amortization of cash received for tenant improvement allowances and broker commissions (collectively, “lease incentives”), amortized on a straight-line basis over the terms of our leases.

 

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Non-cash GAAP straight-line lease cost represents the adjustment required under GAAP to recognize the impact of free rent periods and lease cost escalation clauses on a straight-line basis over the term of the lease.

Prior to the adoption of ASC 842 on January 1, 2019, lease cost was referred to as rent and tenancy costs. Tenancy costs include common area maintenance charges and real estate taxes paid in connection with our leased locations.

Other Location Operating Expenses

Other location operating expenses typically include utilities, ongoing repairs and maintenance, cleaning expenses, office expenses, security expenses, credit card processing fees and food and beverage costs. Location operating expenses also include personnel and related costs for the teams managing our community operations, including member relations, new member sales and member retention, member technology and facilities management, as well as costs for corporate functions that directly support the operations of our communities, such as personnel costs associated with our billings, collections, purchasing and accounts payable functions. As our global platform continues to expand, we expect to achieve further economies of scale on these community support functions, which we expect to have a positive impact on our future margins.

Other Operating Expenses

Other operating expenses relate to costs of operating and providing services to our members through our mature We Company offerings, including Meetup, Flatiron School, Conductor (a marketing services software company that provides search engine optimization and enterprise content marketing solutions) and Managed by Q in the period subsequent to their acquisition.

Pre-Opening Location Expenses

Pre-opening location expenses include all expenses incurred before a location opens for members. The primary components of pre-opening location expenses are lease cost expense, including our share of tenancy costs (including real estate and related taxes and common area maintenance charges), utilities, cleaning, personnel and related expenses and other costs of opening our locations. Personnel expenses are included in pre-opening location expenses as we staff our locations prior to their opening to help ensure a smooth opening and a successful member move-in experience.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of expenses related to our general sales and marketing efforts, including advertising costs, member referral fees, personnel and related expenses related to our sales, marketing, branding, public affairs and events teams, and other costs associated with strategic marketing events. Strategic events, such as events that are part of our Creator Awards program, are investments we make in the continued expansion of our business and the expenses associated with these events are included within sales and marketing expenses. We have also made investments in our sales and marketing organization. Our sales and marketing efforts are primarily focused on pre-opening locations and non-mature locations.

We expect that sales and marketing expenses (excluding stock-based compensation) will decrease as a percentage of revenue over time as a result of our strong net membership retention rates and expanding relationships with our existing members.

Growth and New Market Development Expenses

To capitalize on our significant market opportunity, we have dedicated teams that are responsible for finding and building out new locations and researching, exploring and initiating new markets and new solutions and services.

Growth and new market development expenses consist primarily of non-capitalized design, development, warehousing, logistics and real estate costs, expenses incurred researching and pursuing new markets, solutions and services, and other expenses related to our growth and global expansion. These costs include non-capitalized personnel and related expenses for our development, design, product, research, real estate, talent acquisition, mergers and acquisitions, legal, and technology research and development teams and related professional fees and other expenses incurred such as recruiting fees, employee relocation costs, due diligence costs, integration costs, transaction costs, contingent consideration fair value adjustments relating to acquisitions and impairments and write-offs.

 

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Growth and new market development expenses also include cost of goods sold in connection with our Powered by We solutions and costs of providing services by We Company offerings that are not yet mature and which are not included in other operating expenses above.

We expect that growth and new market development expenses (excluding stock-based compensation and other non-cash adjustments) will decrease as a percentage of revenue over time as we realize greater efficiencies from our technology and sourcing, design and development processes.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related expenses and stock-based compensation expense related to corporate employees, technology, consulting, legal and other professional services expenses, costs for our corporate offices and various other costs we incur to manage and support our business.

We expect that general and administrative expenses (excluding stock-based compensation and non-cash GAAP straight line-lease cost included in general and administrative expenses) will decrease as a percentage of revenue over time as we leverage the historical investments in people and technology that we have made to support the growth of our global platform.

Interest and Other Income (Expense)

Interest and other income (expense) is comprised of interest income, interest expense, earnings from equity method and other investments and foreign currency gain (loss). Interest expense primarily includes non-cash interest expense associated with the imputed interest and fair value adjustments of the embedded derivative associated with the 2018 convertible note (as defined under “—Liquidity and Capital Resources—Convertible Note and Warrant Agreements”), accretion of asset retirement obligations and the amortization of deferred financing costs, interest expense recorded in connection with finance lease liabilities, interest expense relating to our senior notes (as defined under “—Liquidity and Capital Resources—Senior Notes”) and interest expense recorded in connection with outstanding letters of credit issued under our senior credit facility and our letter of credit facility (each as defined under “—Liquidity and Capital Resources—Bank Facilities”) as required by our various leases.

 

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Consolidated Results of Operations

The following table sets forth our consolidated results of operations and other key metrics for the periods presented:

 

     

  (Amounts in thousands, except
  percentages and where noted)

 

  Year Ended December 31,     Six Months Ended June 30,  
  2016     2017     2018     2018     2019  

Consolidated statement of operations information:

         

Revenue

    $ 436,099          $ 886,004          $ 1,821,751          $ 763,771          $ 1,535,420     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

         

Location operating expenses—cost of revenue (1)

        433,167          814,782              1,521,129          635,968          1,232,941     

Other operating expenses—cost of revenue (2)

    —          1,677          106,788          42,024          81,189     

Pre-opening location expenses

    115,749          131,324          357,831          156,983          255,133     

Sales and marketing expenses

    43,428          143,424          378,729          139,889          320,046     

Growth and new market development expenses (3)

    35,731          109,719          477,273          174,091          369,727     

General and administrative expenses (4)

    115,346          454,020          357,486          155,257          389,910     

Depreciation and amortization

    88,952          162,892          313,514          137,418          255,924     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    832,373              1,817,838          3,512,750              1,441,630              2,904,870     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (396,274)         (931,834)         (1,690,999)         (677,859)         (1,369,450)    

Interest and other income (expense), net (5)

    (33,400)         (7,387)         (237,270)         (46,406)          469,915     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax loss

    (429,674)         (939,221)         (1,928,269)         (724,265)         (899,535)    

Income tax benefit (provision)

    (16)         5,727          850          1,373          (5,117)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (429,690)         (933,494)         (1,927,419)         (722,892)         (904,652)    

Net loss attributable to noncontrolling interests

    —          49,500          316,627          94,762         214,976     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to WeWork Companies Inc.

    $ (429,690)         $ (883,994)         $ (1,610,792)         $ (628,130)         $ (689,676)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Key performance indicators:

         

Workstation capacity (in ones)

    107,000          214,000          466,000          301,000          604,000     

Memberships (in ones)

    87,000          186,000          401,000          268,000          527,000     

Enterprise membership percentage

    18%          28%          38%          30%          40%     

Run-rate revenue (in billions)

    $ 0.6          $ 1.1          $ 2.4          $ 1.8          $ 3.3     

Committed revenue backlog (in billions) (6)

 

  $

0.1   

 

    $ 0.5          $ 2.6            N/R          $ 4.0     
                                         

N/R = Not reported

 

(1)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $84.0 million, $154.1 million and $281.5 million for the years ended December 31, 2016, 2017 and 2018, respectively, and $123.7 million and $230.0 million for the six months ended June 30, 2018 and 2019, respectively.

 

(2)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $0, $1.2 million and $12.6 million in the years ended December 31, 2016, 2017 and 2018, respectively, and $5.7 million and $9.7 million for the six months ended June 30, 2018 and 2019, respectively.

 

(3)

Includes cost of revenue related to Powered by We in the amount of $0, $12.7 million and $57.9 million during the years ended December 31, 2016, 2017 and 2018, respectively, and $27.9 million and $85.1 million during the six months ended June 30, 2018 and 2019, respectively.

 

(4)

Includes stock-based compensation expense of $17.4 million, $260.7 million and $18.0 million for the years ended December 31, 2016, 2017 and 2018, respectively, and includes stock-based compensation expense of $10.5 million and $111.2 million for the six months ended June 30, 2018 and 2019, respectively.

 

(5)

Refer to Note 13 to the audited annual consolidated financial statements and Note 15 to the unaudited interim condensed consolidated financial statements, each included elsewhere in this prospectus, for additional information on fair value adjustments included in interest and other income (expense), net.

 

(6)

We began reporting committed revenue backlog on a quarterly basis as of March 31, 2019.

 

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Consolidated Results of Operations as a Percentage of Revenue

The following table sets forth our consolidated results of operations information as a percentage of revenue for the periods presented:

 

     
    Year Ended December 31,     Six Months Ended June 30,  
    2016     2017     2018         2018             2019      

Revenue

            100 %               100 %               100 %       100 %       100 %  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

         

Location operating expenses—cost of revenue (1)

    99%       92%       83%       83%       80%  

Other operating expenses —cost of revenue (1)

    —%       —%       6%       6%       5%  

Pre-opening location expenses

    27%       15%       20%       21%       17%  

Sales and marketing expenses

    10%       16%       21%       18%       21%  

Growth and new market development expenses

    8%       12%       26%       23%       24%  

General and administrative expenses

    26%       51%       20%       20%       25%  

Depreciation and amortization

    20%       18%       17%       18%       17%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    191%       205%       193%       189%       189%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (91)%       (105)%       (93)%       (89)%       (89)%  

Interest and other income (expense), net

    (8)%       (1)%       (13)%       (6)%       31%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax loss

    (99)%       (106)%       (106)%       (95)%       (59)%  

Income tax benefit (provision)

    —%       1%       —%       —%       —%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (99)%       (105)%       (106)%       (95)%       (59)%  

Net loss attributable to noncontrolling interests

    —%       6%       17%       12%       14%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to WeWork Companies Inc.

    (99)%       (100)%       (88)%       (82)%       (45)%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                         

 

(1)

Exclusive of depreciation and amortization shown separately on the depreciation and amortization line.

Comparison of the Six Months Ended June 30, 2018 and 2019 and of the Years Ended December 31, 2016, 2017 and 2018

Revenue

Comparison of the Six Months Ended June 30, 2018 and the Six Months Ended June 30, 2019

 

     
    Six Months Ended June 30,     Change  
  (Amounts in thousands, except percentages)               2018                             2019                 $     %  

Revenue

   $ 763,771          $ 1,535,420          $     771,649                       101%      
 

 

 

   

 

 

   

 

 

   

 

 

 
                                 

Total revenue increased $771.6 million to $1.5 billion for the six months ended June 30, 2019, primarily driven by an increase in membership and service revenue, which increased $634.8 million to $1.3 billion for the six months ended June 30, 2019, from $714.0 million for the six months ended June 30, 2018.

The growth in revenue was primarily driven by growth in our membership base. The WeWork community has grown to approximately 503,000 memberships as of June 1, 2019 from 260,000 as of June 1, 2018.

The increase in membership and service revenue due to growth of our membership base was slightly offset by a decline of approximately $39 million driven by a decline in average revenue per WeWork membership for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018. Average revenue per WeWork membership has experienced a decline primarily relating to our continued expansion into new global markets with

 

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different pricing structures. In some cases we also use discounts to encourage longer contract terms. Our growing membership base combined with increasing average commitment lengths has provided increased visibility as to future revenues as we continue to scale globally, driving an increase in our committed revenue backlog from approximately $0.5 billion as of December 31, 2017 to approximately $4.0 billion as of June 30, 2019.

We calculate average revenue per WeWork membership by dividing our membership and service revenue (other than membership and service revenue from our WeLive offering and related services and other than management fee income from services provided to IndiaCo) by the average number of WeWork memberships in the relevant period.

Other revenue increased $136.8 million, primarily related to a $63.6 million increase in revenue generated from our Powered by We solutions and $30.9 million related to growth in our mature ventures. The remaining $42.3 million was primarily driven by a reimbursement for services performed for an affiliate in connection with Creator Award events received during the six months ended June 30, 2019.

Comparison of the Year Ended December 31, 2017 and the Year Ended December 31, 2018

 

     
    Year Ended December 31,     Change  
  (Amounts in thousands, except percentages)               2017                             2018                 $     %  

Revenue

   $ 886,004      $ 1,821,751      $     935,747                   106%  
 

 

 

   

 

 

   

 

 

   

 

 

 
                                 

Total revenue increased $935.7 million to $1.8 billion for the year ended December 31, 2018, primarily driven by an increase in membership and service revenue, which increased $830.4 million to $1.7 billion for the year ended December 31, 2018, from $866.9 million for the year ended December 31, 2017.

The growth in revenue was primarily driven by growth in our membership base. The WeWork community has grown to approximately 387,000 memberships as of December 31, 2018 from 183,000 as of December 31, 2017.

The increase in membership and service revenue due to growth in our membership base was slightly offset by a decline of approximately $46 million driven by a decline in average revenue per WeWork membership for the year ended December 31, 2018 as compared to the year ended December 31, 2017. Average revenue per WeWork membership has experienced a decline primarily due to our expansion into global markets with different pricing structures. In some cases we also use discounts to attract members as we open new locations at a faster rate, or to encourage longer contract terms.

Other revenue increased $105.3 million to $124.4 million for the year ended December 31, 2018, from $19.1 million for the year ended December 31, 2017, due to the acquisition of several companies including Meetup, Flatiron School and Conductor and revenue from our Powered by We solutions and various other activities not directly related to our workplace solutions.

Comparison of the Year Ended December 31, 2016 and the Year Ended December 31, 2017

 

     
    Year Ended December 31,     Change  
  (Amounts in thousands, except percentages)               2016                             2017                 $     %  

Revenue

   $ 436,099      $ 886,004      $     449,905                   103%  
 

 

 

   

 

 

   

 

 

   

 

 

 
                                 

Total revenue increased $449.9 million to $886.0 million for the year ended December 31, 2017, primarily driven by an increase in membership and service revenue, which increased $432.5 million to $866.9 million for the year ended December 31, 2017 from $434.4 million for the year ended December 31, 2016.

The growth in revenue was primarily driven by growth in our membership base. The WeWork community has grown to approximately 183,000 memberships as of December 31, 2017 from 87,000 as of December 31, 2016. Additionally, we opened two WeLive locations during 2016.

 

 

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The increase in membership and service revenue due to growth in our membership base was slightly offset by a decline in average revenue per WeWork membership for the year ended December 31, 2017 as compared to the year ended December 31, 2016. Average revenue per WeWork membership has experienced a decline primarily as we have expanded into different global markets with different pricing structures and in some cases may also use discounts to attract members as we open new locations at a faster rate.

Other revenue increased $17.4 million to $19.1 million for the year ended December 31, 2017, from $1.7 million for the year ended December 31, 2016 due to the launch of our Powered by We solutions, which represented $13.7 million of the increase in other revenue during the year ended December 31, 2017. During 2017, we also acquired Meetup and Flatiron School. The collective revenue earned by these offerings for the periods subsequent to their acquisitions during the year ended December 31, 2017 contributed $3.2 million of the increase. The remaining increase in other revenue of $0.5 million relates to revenue from various other activities not directly related to our workplace solutions.

Location Operating Expenses

Comparison of the Six Months Ended June 30, 2018 and the Six Months Ended June 30, 2019

 

     
    Six Months Ended June 30,     Change  
  (Amounts in thousands, except percentages)               2018                             2019                 $     %  

Real estate operating lease cost

   $ 416,016      $ 835,800      $ 419,784       101%  

Employee compensation and benefits (excluding stock-based compensation)

    80,794       148,825       68,031       84%  

Stock-based compensation

    6,420       25,953       19,533       304%  

Other location operating expenses

    132,738       222,363       89,625       68%  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total location operating expenses

   $ 635,968      $ 1,232,941      $         596,973                   94%  
 

 

 

   

 

 

   

 

 

   

 

 

 
                                 

N/M = Not meaningful

Location operating expenses increased $597.0 million to $1.2 billion due to the overall growth of our global platform and the increase in the number of open locations. As a percentage of total revenue, location operating expenses for the six months ended June 30, 2019 was 80%, which remained relatively flat as compared to 83% for the six months ended June 30, 2018.

Our most significant location operating expense is operating lease cost, which includes the following components and changes:

 

     
    Six Months Ended June 30,