WeWork Inc. (NYSE:WE) Q3 2022 Earnings Conference Call November 10, 2022 8:00 AM ET
Company Participants
Kevin Berry – Senior Vice President, Investor Relations
Sandeep Mathrani – Chairman and Chief Executive Officer
Andre Fernandez – Chief Financial Officer
Conference Call Participants
Alex Kramm – UBS
Vikram Malhotra – Mizuho
Alexander Goldfarb – Piper Sandler
Tom Catherwood – BTIG
Omotayo Okusanya – Credit Suisse
Brett Knoblauch – Cantor Fitzgerald
Operator
Good morning. My name is Dennis and I will be your conference operator today. At this time, I would like to welcome everyone to the WeWork Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]
I would now like to turn the conference over to Kevin Berry, Senior Vice President of Investor Relations. Please go ahead.
Kevin Berry
Thank you, Dennis. Good morning, and welcome to our third quarter 2022 earnings call. During this call, we will refer to our earnings release and investor presentation, which have been furnished with the SEC and can be accessed at investors.wework.com. This discussion will include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.
Additional information concerning factors that could cause actual results to defer materially is contained in our latest annual and subsequent quarterly and periodic reports filed with the SEC. We will also discuss certain non-GAAP financial measures, which we believe are meaningful in evaluating the company’s performance. Additional disclosures regarding these non-GAAP measures, including a GAAP to non-GAAP reconciliation, are included in our earnings press release and supplemental presentation and will also be included in our quarterly report.
I like to introduce Sandeep Mathrani, Chairman and CEO of WeWork; and Andre Fernandez, Chief Financial Officer. With that let me turn it over to Sandeep.
Sandeep Mathrani
Thanks, Kevin and thank you all for joining our call this morning. WeWork beat consensus by $3 million. Consensus was in budget foreign exchange. Consensus was $865 million, our revenue came in at $868 million. Throughout the third quarter, we have been able to demonstrate continued momentum in growth across revenue, memberships, occupancy, our All Access, and our newest software solution WeWork Workplace.
We are consistently working to strengthen our business model and meet the growing demand for more flexible office solutions for a new world of work. At a macro level, this falls in line with the ongoing trend we see with flex space making increased marketing share from the traditional office sector. Our third quarter revenue increased 24% year-over-year and was up 33% using budget foreign exchange rates.
In New York City and London, we occupy approximately 1% of the office staff and sold the equivalent of 15% and 35% of the traditional square feet sold in the quarter, respectively. Consolidated physical occupancy continues to grow up 200 basis points from the last quarter to 72% for our mature buildings.
Over the past year, we have spoken about how our transforming and differentiated business model has enabled us to capitalize on the headwinds across the traditional office sector. In the face of an evolving and uncertain macro environment, we have proved our flexibility is a key lever to [indiscernible] challenging and evolving conditions.
Let me turn to our capital structure. I want to start with our continued focus on the balance sheet. We ended the third quarter with 460 million cash and cash equivalents, 500 million of unissued senior secured notes fully available to us, and at least 500 million of secured debt covenant capacity. The commitment for, and if drawn, the majority of the senior secured notes have been extended from February 2024 to March 2025, and the commitment amount was updated to 500 million subject to certain terms and conditions.
Turning to our 1.25 billion senior letter of credit tranche, I’d like to provide some historical perspective and how this has evolved since early 2020. When I joined in February of 2020, this tranche was $1.75 billion, serving as collateral through our lease obligations. As a result of the steady burn down of our lease obligations and not putting up new letters of credit, we reduced net tranche to 1.25 billion earlier this year, a reduction of $500 million. This will further be reduced by an incremental 200 million by February of 2023.
We recently launched the [formal process] [ph] with our participating banks to extend the majority to March 2025. By then, an incremental burn down of 250 million will occur for an aggregate reduction from early 2020 to March 2025 of $950 million. At close, an affiliate of SoftBank Group will continue to provide credit support for the amended letter of credit tranche. We are very pleased with our progress to date and are grateful to the continued support of WeWork by affiliates of the SoftBank Group.
Turning to our portfolio, our strategy has continually improved the quality of the portfolio by opening new locations at exiting underperforming locations. Our portfolio strategy is similar to a retailer’s approach to their store fleet, whereby investments are made into high performing stores and lower performing stores are pruned from the portfolio.
We have continued our ongoing efforts to optimize and enhance our global real estate portfolio by executing new deals and exiting others. System wide, we entered into management and revenue share agreements, as well as traditional leases for over 20 new locations globally, comprising of approximately 18,000 workstations this year.
As you know, we significantly pruned the portfolio after I joined in early 2020, and we’ve continued these efforts in earnest with a planned exit of approximately 40 locations. These locations comprising approximately believe 41,000 workstations are all in the United States and are those that don’t meet our design criteria have obsolescence or there’s an oversupply in the market.
Our members in these locations have all been notified and most have already been relocated to higher quality WeWork assets. These planned exits are expected to reduce top line revenue However, are expected to also reduce the rent, tenancy, and building operating expenses and once fully implemented are expected to contribute approximately $140 million of annual adjusted EBITDA. Most of these locations will be exited by the end of November of this year. A couple will straggle into December and into January.
In connection with these planned exits, we will pay early termination payments to our landlords. Since we expect to make the majority of these payments over time, we don’t expect these payments to materially impact our 2022 or 2023 liquidity outlook since they essentially represent future rental obligations that do not affect our cash forecast. The overall effect on our portfolio from these exits is expected to be positive.
Taking into account these exits as if they occurred at the end of the quarter, occupancy for mature buildings will be 76% versus 72% as supported. The WeWork consolidated portfolio will be 608 locations and comprised of 714,000 workstations. With a streamlined and higher quality portfolio, we further aligned our corporate expenses to even more efficiently support our business plan.
During our first quarter call, we estimated SG&A run rate will be 750 million to 800 million by the fourth quarter of this year. Our revised annual run rate is now closer to approximately 725 million and believe we have a path to operate even more efficiently.
Turning to our third quarter results. Revenue for the quarter was in-line with our expectation, but was impacted by the strong quarter. As reported on a GAAP basis, revenue was 817 million, an increase of 24% year-over-year. At our budget foreign exchange rates, revenue will be 868 million this quarter, up 33% year-over-year versus consensus of 865 million.
Adjusted EBITDA for the quarter was negative 105 million in-line with our expectations, 29 million better than the second quarter and a 251 million improvement year-over-year. Our consolidated financial results include non-controlling interest stakes, primarily in Japan and Latin America, and excludes unconsolidated investments, primarily in India and China.
Accounting for our ownership stake, adjusted EBITDA attributable to WeWork was negative 86 million in the quarter or 19 million better than as reported. Consolidated physical occupancy increased to 71% at quarter-end and taking into account the [planned exits] [ph] would have been 75%. Occupancy for mature buildings, a metric we’ve asked for by some investors were 72% and taking into account the planned exits would have been 76%.
Approximately 8,000 physical memberships and 7,000 workstations were added during the quarter. Mature occupancy in the U.S. and Canada continued to improve. Taking into account the planned exits reached 75% with New York now at 81% and San Francisco at 83%. Footfall in this region is steadily growing.
Turning to United Kingdom, Ireland, EMEA, and the Pacific regions, occupancy for mature buildings reached 82% with London at 79%, Paris at 81%, Seoul at 91%, Singapore at 90%, Sydney at 70%, Dublin at 81%, and Berlin at 88%. Footfall in this region has actually reached pre-pandemic levels and in certain markets like Paris and Milan, it’s actually above pre-pandemic levels.
ARPM was 477 in the third quarter, and trending as we expected, but impacted by the very strong dollar. On Budget FX, ARPM would be $508, an increase of 6% year-over-year and above our original expectations for the year. System-wide workstation sales were 205,000, which is equivalent to 12.3 million square feet in the quarter. Consolidated workstations was 162,000 or 9.7 million square feet in the quarter. The average commitment term remained flat.
Moving on to our All Access and On-Demand products, memberships grew to 67,000 in the third quarter and revenue was 47 million. We plan to end the year with approximately 70,000 All Access memberships and we expect to generate approximately 185 million to 195 million of annual revenue. We launched our All Access product in 2020 and it has become an established and growing business. Now, let me turn to WeWork Workplace.
Turning to our Workplace solution that we launched in late July of this year, we have actually signed over 100 companies that are using the product with over 15,000 licenses to manage and optimize their use of office space within WeWork locations and within their own locations.
Turning to guidance, we expect fourth quarter revenue to be 870 million to 890 million, adjusted EBITDA to be negative 65 million to negative 85 million, and adjusted EBITDA accounting for our ownership stakes of consolidated and unconsolidated operations, which is defined as adjusted EBITDA attributable to WeWork to be negative 55 million to negative 75 million.
We expect full-year revenue to be between 3.35 billion to 3.37 billion, adjusted EBITDA to be negative 515 million to negative 535 million, and adjusted EBITDA attributable to WeWork to be negative 435 million to negative 455 million. The guidance of revenue excludes the impact of fluctuations in foreign currency exchange from our original budget rate.
However, our guidance for adjusted EBITDA is based on spot foreign exchange currency rates. Our fourth quarter guidance was impacted primarily by slower than expected growth in our operations in the United States and Japan regions, the impact of planned exits and fluctuations in foreign exchange. Andre will provide further financial results.
Andre Fernandez
Thanks, Sandeep, and good morning everyone. Sandeep touched on a number of the financial highlights in his remarks, so I’ll quickly provide some additional color here. First, total company revenue was $817 million, up slightly sequentially and up 24% year-over-year. Foreign exchange headwinds, primarily weakness in the euro, pound sterling, and Japanese yen had an even greater negative impact on revenue this quarter, reducing revenue by approximately $51 million, compared to our original budgeted foreign exchange rates.
As we mentioned, excluding that impact, total revenue would have been $868 million for the quarter and up 33% year-over-year. Building margin in the third quarter, a measure of gross profit at the building level was $105 million, up sequentially from $86 million, and a $208 million improvement year-over-year.
Within the building margin increase, we were able to reduce our location operating expenses quarter-over-quarter, despite higher occupancy. And while we have seen the impact of inflation in our building operating expenses, particularly energy costs in Europe, we’ve been diligent in managing our overall operating expenses. A favorable foreign exchange rate has also helped reduce our reported operating expenses.
Next, our adjusted EBITDA loss in the third quarter was $105 million, a $29 million sequential improvement from the second quarter and over a $250 million improvement versus last year, driven by higher revenue and lower overall expenses. A particular note is SG&A, which fell 24% year-over-year, and our combined location operating and pre-opening expenses dropped $40 million year-over-year or 5% and despite higher occupancy.
Our net loss was $629 million in the third quarter. Recall, our net loss includes approximately $430 million of non-cash and below the line items, including unrealized FX losses, depreciation and amortization.
Moving on now to liquidity and cash flow. Our free cash flow for the third quarter was negative $205 million, which was a $93 million sequential improvement from the second quarter, driven by improved operating performance and working capital and lower CapEx. We ended the third quarter with consolidated cash of $460 million, down from $625 million at the end of the second quarter and in-line with expectations.
Net capital expenditures for the quarter was $55 million, down from $71 million in the second quarter. On liquidity, as Sandeep mentioned, we ended the quarter with cash commitments and debt covenant capacity of approximately $1.5 billion as of quarter-end.
That concludes our prepared remarks. Thank you. And with that, operator, please open the lines for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is from the line of Alex Kramm with UBS. Please go ahead.
Alex Kramm
Yes. Hey, good morning, everyone. Just on the exiting that you’re doing here, I think Sandeep, you mentioned that there will be some cost, but there will be, I don’t know, you think you said, immaterial, but can you give a little bit more detail? I think you said, all this will be done in November. So, maybe help us a little bit with the cash outlays over the next couple of quarters, driven by that because clearly you’re still burning a decent amount of cash?
Sandeep Mathrani
Good morning, Alex. So, we have accounted for paying rent over the course of 2022 and 2023. So, essentially the exit cost is included to our rent payments and it will be paid monthly according to the rental schedule. So, we have no impact, no further impact to our liquidity or our cash position.
Alex Kramm
Okay. And then maybe just shifting gears, you also said that you’re changing some of the revenue share agreements. I don’t think you really touched upon that on your prepared remarks. Can you talk a little bit more about what exactly you’re doing and how that’s going to impact the – going forward the agreements? Thank you.
Sandeep Mathrani
So, as I mentioned in my remarks, we have signed revenue share and management agreements for about 18,000 new desks, and essentially they are virtually all management agreements will be good at management fee. Some of them are revenue share agreements like [indiscernible] on a revenue share agreement. So, effectively, they don’t come online till 2023 and 2024. I don’t know that you should provide any further detail, but essentially we collect about 10% of the revenue in the management agreement.
Alex Kramm
All right. And then just one quick last one, if I may? On the All Access side, it seems like the trends remain decent on a year-over-year basis, but it’s slowed a little bit here over the last few months. So, maybe just give a little bit more color what’s been happening on that end? And then also can you please provide the ARPM for All Access? I don’t think you gave it this quarter. Thanks.
Sandeep Mathrani
So, as I mentioned in the last few quarters, our capacity for All Access, cap side of about 70,000, 75,000 members. We are in the process of increasing that capacity in 2023 to one 100,000. So, effectively we are near capacity, and we’ve also mentioned we grow about a thousand or members a month and we continue that trend to about 67,000 in this quarter. And as I said, we’ll probably reach our capacity by year-end about 70,000. So, the way to increase capacity is, you’ve got to increase the common area lounge areas and we’re in the process of doing that in some of our locations, so we can get the capacity [under 1000] [ph]. The ARPM is about the same about $225 or so for the All Access members.
Alex Kramm
All right. I’ll jump back in the queue. Thanks.
Operator
Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra
Thanks for taking the question. So, I guess just maybe Sandeep is starting off, can you give us a sense of how much revenue visibility you have now going into, I guess, fourth quarter is mostly covered, but you usually have revenue visibility at least two quarters out. So, what’s the revenue visibility over the next two quarters and what’s embedded in terms of occupancy expectation?
Sandeep Mathrani
Again, we will provide you with – in our Q4 call with Q1 and Q2 revenue projections, but we continue to see – we continue to see growth in occupancy and revenue, as well as we continue to see reduction in expenses. And so, we continue to guide towards 2 points or so increase in occupancy per quarter. We ended this year with the exits at about 75%. So, we think Q1 will be closer to 77% occupancy, and again sequential increase in revenue as we’ve seen in the last few quarters.
Vikram Malhotra
Okay. Just maybe if you could add some color on what you’re seeing specifically on the, you know, the tech side? We’ve obviously heard, you know, Meta laying off people, Meta giving back a few leases, other smaller technology firms with layoffs, can you just give us a sense of as you look at the portfolio, are there, is there a watch list? Are there any impact? Were there any impacts specifically in the third quarter?
Sandeep Mathrani
Yes. We don’t really comment on the decisions of our members. And we’ve said before that the enterprise part of our business has had the highest occupancy, almost 80% in the U.S., over 80% in the EMEA region. So, we continue to see demand for our enterprise space. In the locations we’ve gotten back and I think I pointed out in the last call, we’ve been able to successfully release most of the enterprise space in our portfolio. And we actually do see continued growth for our client base in the enterprise space. So again, the point of flexibility is, you get the ability to increase our occupancy. So, we’ve actually done, we’ve been able to refill our space that we’ve gotten back so far.
Vikram Malhotra
Okay. And then just this last one, so with the restructuring, you mentioned the boost to EBITDA or adjusted EBITDA, I think it’s 150 million. So, you’re sitting at roughly 500 million in cash, you still have some cash burn from here on till this, and I think in the past, you’ve mentioned when the portfolio is at 74%, 75%, you actually start to generate – you are at least break-even on EBITDA. Can you just walk us through liquidity needs from here on? The unused capacity over the next few quarters, is there a need to draw on that or look for other sources of capital, including as you include the effects of this restructuring?
So, you know, I think you are right. You know, we do get to the mid-70s. We get to break-even adjusted EBITDA. So, we are obviously at the precipitous of that now. We do anticipate during the next quarter or so to draw on the $500 million of senior secured, but we don’t anticipate the need of additional liquidity beyond the cash on hand and the senior secured all the way to the end of 2023.
Vikram Malhotra
Thank you.
Operator
Your next question is from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb
Good morning. Good morning, Sandeep. So, just continuing along that, you’ve been pretty consistent over the past year of saying, EBITDA positive by year-end this year, I think you’ve been saying, sort of December, you would turn the corner on flipping from negative EBITDA to positive and then mid-2023 on positive cash flow. In the response to Alex’s question on the lease term fees, you’re still paying cash. So, it’s still cash going out the door.
In answering Vikram, you said that you’re going to start drawing the 500 million of – on that senior unsecured or senior secured, but when you put it all together, big picture, are we still on-track for positive EBITDA in December this year? And by middle of next year to have the entire WeWork company positive cash flow with all these elements that you’ve discussed?
Sandeep Mathrani
So, hi, Alex. So, for December, 95% of our revenue is committed. The balance of the revenue is [consensus] revenue, on-demand revenue, and members created an opening month. This is about $10 million to $15 million. Over the last 10 months, we’ve been able to achieve that $10 million to $15 million gap. If December is in-line with the past several months, we will be at break-even adjusted EBITDA in the month of December.
As I mentioned earlier, we continue to see growth in occupancy and revenue, as well as the reduction in expenses. In addition, CapEx spend in the month of – in 2023 will be half of 2022. In 2022, it’s about $200 million. In 2023, it’s going to be $100 million. This should allow us to be adjusted EBITDA positive for the year and have a path to cash flow positive by 2023.
Alexander Goldfarb
Okay. But Sandeep, just going back because everyone’s focused on profitability, is the view, so, it just – so we’re all on the same page. It sounds like you’ll be break-even in December, and hopefully that continues into – that should continue into the first quarter, but should we still be thinking about middle of 2023 to be cash flow positive or in your view, you would say, hey, guys, based on what we’re doing, based on that we’re going to be exiting some buildings, but we still have to pay rents. So, we’re not going to get the revenue, but still have to pay the rents that the cash flow positivity is back, is tail end of 2023.
Sandeep Mathrani
I think that’s a fair comment. Alex, it will be in the tail-end of 2023.
Alexander Goldfarb
Okay. And is that because – is that mostly because you continue to pay cash on those rents that you were exiting, but not getting the revenues or is there some other reason that the…?
Sandeep Mathrani
As a matter of fact, as we just said that the adjusted EBITDA is going to be $140 million of the positive. So, it’s actually a positive impact to EBITDA. The reason we think it will be the tail-end has actually embedded it with foreign exchange rates. So, what happens is in the European markets, obviously, we’re over 80% occupied and above mid-70, you know, once you cross mid-70s of occupancy, the revenue continues to go up and the profitability continues to grow up.
So, till mid-70s of occupancy, you’re making money in euros or pounds, and you’re expensing it in euros or pound. And so, it has a very small impact to cash flow or adjusted EBITDA. Above mid-70s, okay, you’re actually in the profit territory and now you’re repatriating or converting it into dollars and the impact of foreign exchange is quite large in 2023 because we – in the European markets, international markets, we expect occupancy to be in the mid-80s by early next year.
And so now you’ve got 10 points of occupancy. And so, we did some math. The impact on ARPM is almost from $565 at budget FX to about $475 at spot FX. It’s almost whatever that is $85. So, you apply that $85 okay, to 10 points of occupancy. So, that’s about 20, you know, to 20,000 or [25,000 debt] [ph] and you start to see the impact that foreign exchange has to cash flow. So, that’s really, mainly foreign exchange driven.
Alexander Goldfarb
Okay. So, and can you give us a sense of what the remaining rent payments are on the leases that you’re exiting by the end of 2023? Is it, like, a 20 million cost, 30 million cost?
Sandeep Mathrani
Alex, let me just get back to you. I’m having someone just do a quick math. I will answer that question.
Alexander Goldfarb
Okay. Let me just ask a final question. Occupancy in the U.S. is 66%, your total portfolio occupancy is 71%, it was 70% last quarter, so it was, sort of flattening out, is the real, are these leases that you’re exiting? Is that what’s really needed to get the occupancy to continue to grow? Meaning, these 40 leases, are these really the sole drags on the portfolio or are there other headwinds that are preventing the U.S. occupancy to approaching international, you know, sort of getting above that 70% level?
Sandeep Mathrani
I think it’s two questions. So, I would sort of sit back and say, we’ve actually added 8,000 members in this quarter. Right? And they’ve been predominantly in the U.S. The U.S. has lagged. We’ve been consistent about that by two or three quarters. We are starting to see a tremendous pickup since after Labor Day in the U.S. And the effective is, we wanted to get rid of our obsolete locations.
Demand didn’t come back as swiftly as we thought. And so, we decided that to be profitable and sustainably profitable, we should close locations that are obsolete. We are able to relocate, as you know, 80% to 90% of our members into the remaining locations in the same market, and they usually are much better located and much better fit it out. And so, it actually drives better member experience. And now that we’ve gotten our occupancy into the mid-70s, we believe that we can now drive, continue to drive rate, and I think it was important for us to, you know, [indiscernible] of obsolete locations like any retailer would to drive better experience and drive rate.
So, I think it’s – and now that we’ve gotten about 75% occupancy and New York is now at 81% occupancy, we believe we can actually drive rate and we think that’s the driving factor to continue to have sustainable profitability. And just to go back and answer your question on the rent, it’s about $200 million over the next 15 months.
Alexander Goldfarb
That you’ll pay and then that goes away.
Sandeep Mathrani
Yes.
Alexander Goldfarb
Great. Thank you very much.
Operator
Your next question is from the line of Tom Catherwood with BTIG. Please go ahead.
Tom Catherwood
Thanks and good morning everybody. Following up on Alex’s question on occupancy, Sandeep, I kind of try to triangulate a couple pieces in here. And the one thing that’s not lining up for me is, desk sales were, kind of consistent on a system wide basis this quarter and picked up a bit on the consolidated portfolio, but occupancy didn’t kind of pick up as much as we would expect it given that volume of activity. Did you see more churn during this quarter or was there something else driving that, kind of gap between what you were doing deals on and kind of what the occupancy ended up at the end of the quarter?
Sandeep Mathrani
So, we also – I think you do appreciate, we also added 7,000 new desk in the quarter, right? So, if you actually – if you increase the numerator and the denominator, and that’s another point. So, if I just added the 8,000 desk without increasing the denominator, that 71% would be closer to 72%, which would be a 2 points of occupancy gain. So, I just point that out as a point of reference.
Tom Catherwood
Totally fair. As far as the churn though, was that up in this quarter?
Sandeep Mathrani
No. Actually, churn was about the same. It was about 4%, which is what we model. Churn in the international markets was actually closer to 3%, little – low 3% and churn in the U.S. was mid-4s. So, overall churn remain pretty consistent, maybe 50 basis points higher, but pretty consistent. I mean, our modeling took into account 4% and it was at 4%.
Tom Catherwood
Got it. And then can you comment, we’re obviously headed into mid-November here, so far in the fourth quarter, how has that leasing activity or membership sales activity progressed specifically in the United States? Have you seen that pickup continue as you kind of alluded to post Labor Day?
Sandeep Mathrani
In the fourth quarter, the new deals remained pretty much consistent. October was probably the best first month of a quarter in a few years. So, the new activity continued in the United States and in the international markets. Although I will say, the U.S. churn also continued. So, effectively, we are slightly ahead of the churn because the new activity and the pipeline is quite large. And with the churn also has, you know, stayed, like I said, at that 4%, 4.5%.
So, effectively, you know, we’ll probably be up a point or so or maybe 2 in occupancy in the fourth quarter. International markets continued to thrive and growing at a substantial pace. And it was interesting to us that UKI and the international markets, even though there is recessionary fears, we are seeing no slowdown in activity.
Tom Catherwood
Got it. Appreciate that Sandeep. And then, kind of one more on leasing. Last quarter, you had mentioned an expected pickup in the SMB portion of the portfolio. You obviously alluded to the strength still at the enterprise level, but did you see that, kind of expected pickup with the smaller operators? And is that a trend that you see continuing through the balance of the year?
Sandeep Mathrani
Absolutely. What’s driving our business and the success of our business really and continued growth and occupancy in the U.S. is our SMB business. It is at all-time highs in the leasing activity, almost 70% to 75% of our leasing activity is the SMB business. And that has been the case now for about 15, 16 months. They’ve been pushing occupancy. And actually, I would sit back and say, if I was to look at, you know, Q3 and I look at the month of October, it is actually only accelerated in the U.S. And so, we continue to see tremendous strength in the SMB sector.
Tom Catherwood
Got it. Thank you, Sandeep. And then just one quick last one if I can? On the WeWork Workplace, obviously, you mentioned the 15,000 licenses, I know it’s still early days for this part of your platform, but do you have an expectation for what the earnings contribution could be from this side of the business either in the near term or the medium term?
Sandeep Mathrani
You know, I always like to sit back and say, you know, WeWork Workplace is where WeWork All Access was 18 months ago, and you can see WeWork All Access is now, you know, almost a $200 million a year of business. The TAM in the U.S. for Workplace is now about $3 billion, globally, it’s about $5 billion. We have a very good partner, the largest enterprise software customer for property management Yardi. And so, we don’t – we haven’t really factored in much revenue in 2023, but the take up has been much better than we thought.
So, I don’t want to speculate on how much of that market share we can get, but as being leaders in flex, leaders in workplace, we do hope that we can capture our fair share of the TAM over the next 12 to 24 months. I would also just sit back and say is Q3, our system wide sales was almost $943 million, which makes us actually the largest now in revenue flex provider in the world. And that gives us the visibility to almost 30,000 or so individual members. So, we have a tremendous [job of the funnel] [ph] to go market at WeWork Workplace product.
Tom Catherwood
Appreciate the color. Thanks everyone.
Operator
Your next question is from the line of Omotayo Okusanya with Credit Suisse. Please go ahead.
Omotayo Okusanya
Yes. Good morning, everyone. Sandeep, just given some of your comments about the potential outsizing impact of FX, if you could continue to have a strong dollar, to me that suggests that there has to be much more focus on extending debt maturities. So, to that, could you talk a little bit again about some of the progress being made on the senior and potentially the JV tranches of the letters of credit?
Sandeep Mathrani
Yes. As I mentioned to you that effectively the $500 million senior secured has been extended to March of 2025. On October 25 of this year, we officially launched with our bank group to extend the letter of credit from February 2024 to March 2025 for both the senior and junior LC Tranches. Softbank, the affiliate of Softbank Group continues to be the credit support for the letter of credit. So, we are, you know, hopeful over the next 30 to 45 days to be able to, you know, close on the extension of the letter of credit to March 2025.
Omotayo Okusanya
Okay. That’s helpful. And then any commentary at this point from SoftBank, just around, again, the [expiration] [ph] of the lock up, what they could potentially be doing with the shares?
Sandeep Mathrani
We really don’t have any commentary from them. But I think it is pretty evident with their continued support of extending the majority of the 500 million senior secured and providing the credit support to the senior and junior LC Tranches of their confidence in WeWork and the support of WeWork.
Omotayo Okusanya
That’s helpful. One more for Andre. Again, the change in the adjusted EBITDA guidance, if you take a look at the midpoint of the new versus old guidance, about $50 million or so for the full-year, can you help us better understand how much of that really is FX, how much of it is closing cost, lower, you know, exit costs associated with the restructuring? How much of it is, kind of slowing U.S. and Japan versus expectations? Just to get a sense of what caused like the $50 million change?
Andre Fernandez
Yeah. I don’t think we want to pin it on one particular. I think we said in Sandeep’s remarks, there was sort of a mix of those items that you mentioned. And you know how we did that for the attribution, right? So, the attributions or attributing EBITDA at our percentage ownership to the various consolidated and non-consolidated affiliates of the company. So, that’s why we added that. But I think on the EBITDA range, it was just really more of a mix again between those variables that that you mentioned. And then I think also Sandeep mentioned, sort of, okay, what more do we still have to go here, a little bit more to get to a profitability point in December, and I believe he provided that range also in his remarks.
Omotayo Okusanya
Okay. One more if you don’t mind. Workplace, the economics behind that business, I know a while ago, it was kind of suggested because of, like $10 per month per license, is that still the idea? At this point, I was just trying to just, kind of gauge what, kind of revenues you could generate from the business going forward?
Sandeep Mathrani
Yeah. That’s the right pricing. You know, it’s going to be, when the business stabilizes, it’s $10 per user per month. Again, just to be just to be fair, it’s going to vary country-by-country. That’s the pricing in the United States. It’s £10 in the UK and then it was different pricing in different other regions of the world.
Omotayo Okusanya
Correct. That’s helpful. Thank you.
Operator
Your next question is from the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead.
Brett Knoblauch
Hi, team. Thanks everyone for taking my question. On the, I guess, capacity reduction’s exiting cost, 41,000 [indiscernible]. How should we think of kind of quarter-over-quarter membership growth? I guess, effectively, how many of those you expect to be able to replace into other locations and what should we be expecting from a net member add for the fourth quarter?
Sandeep Mathrani
So, generally, we’ve been able to relocate 80% to 90% of our members into other locations. And like I said, the reason it’s a good member experience is because we generally move them into better locations that are better fitted out. And your question is in Q4, what do we expect? I think at the end of, at the end of, if these, all these closures happened at the end of Q3. I think we basically said our occupancy will go up to about 75%, 76%.
And so, I’m just trying to look forward the pro forma, so give me a second. I’ll get to your question because we [didn’t do some math] [ph] on the pro forma number of members. We ended at 205,000 members at the end of Q3, no, we leased 205,000 members. We ended at, let me get back to you. I have it somewhere. I’m just going to look for it. I’ll answer the question before the call is over.
Brett Knoblauch
Perfect. I appreciate it, guys.
Operator
Your next question is a follow-up from the line of Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra
Hi. Just two quick ones. I just wanted to follow-up on the exiting, the impact of the exiting with the links to revenue and expense, just first, can you just maybe give us some color, how much term was remaining on those buildings that you’re exiting? And is it just doing the math on what the EBITDA impact is with the revenue, sort of in the low, you know, 30 million, 40 million range from those buildings?
Sandeep Mathrani
So, the average term that was remaining is still about 10 years. The average guarantee on those leases is about a year and four months. And we chose them obviously because the arbitrage is quite large between the exit cost and of course the increase in the EBITDA. So, if you think about it, you get 140 – it is about $12 million a month, it’s 144 million, we said 140 in my remarks. So, $140 million of increase in adjusted EBITDA at a cost of, call it, $200 million or so to exit. So, obviously, you can see the arbitrage is quite positive.
Those locations were about 42% occupied. And so the revenue was about $7 million or so a month. [Multiple Speakers] No, I was going to say, I was going to answer the previous question that was asked about the memberships. So, at the end of Q3, on a consolidated basis, we had 756,000 desk, accounting for the exit is 714. At the end of Q3, we had 536,000 members, accounting for the pro forma exits. It’s 532,000 members, so just a loss of 4,000 members. And as it compares into Q2 where we ended with 528,000 members, it is still an increase to 532,000 members.
Vikram Malhotra
Okay, great. And then I just wanted to clarify, so you – just to make sure you said you will start drawing on the 500 million commitment that you have that’s extended 2025, is that over the next, you know, few quarters?
Andre Fernandez
Yes, this is – hi, this is Andre. So, I think our cash guidance is – we’re still in the range of what we said last quarter. Remember, we said it was going to be about a 300 million burn for the second half of the year and then closing the year with around $300 million of cash. Remember we sort of have low points just for working capital requirements during the quarter. And then there’s, sort of a point below, which we really don’t want to go below.
So, is it possible we could get through the fourth quarter without having to draw yes, but we’ll see how the cash trends, but then again, I wouldn’t want to go too low on cash, just generally on an absolute cash balance, which might require me to take the first draw. So, is it again, is it possible we might have to draw in the fourth quarter? Yes, it’s also possible cash might actually be favorable and we might be able to defer that to Q1.
Vikram Malhotra
Okay, great. And then just last one Sandeep, bigger picture. As we’re seeing, sort of this – the concerns about recession or on deck job losses, any anecdotes you can share with us on how maybe enterprise tenants are thinking between, you know, flex models versus long-term as they look at their own, you know, real estate holdings. Just any specific anecdotes you can share on the exposure to flex from here on?
Sandeep Mathrani
I see what we’re seeing is more positive Vikram because as I mentioned, the headwinds in the office sector is really benefiting Flex model. And as we see rollover of rents coming of the larger tenants, they’re shifting to consolidate into tighter spaces, and moving to flex. So, we’re actually seeing an advantage. And as I mentioned in my remarks and if you actually look at it in New York, we control 1% of the market and we look 15% or so of the demand.
In London, we took 35%. So, you’re continuing to see the movement to flex by traditional office leases and office tenants and that bend is everywhere, right? So, if you look at Boston, we took 12%, San Francisco 20%. And by doing our closures, we were very proactive to make sure that we have a sustainable adjusted EBITDA model. And effectively, in another way, for an 80% occupancy in New York, we can start to drive price and we actually get to select the, kind of members we want.
So, we continue to see demand of our pipeline in international markets is 1.7x our need. So, we feel pretty comfortable there. In the U.S. it’s about 1.4x. And so, we continue to see demand coming to us in those markets. So, we are feeling actually, like I said, we guided to growing about 2% or so a quarter. We continue to do that. And as you get higher occupancy, you’re going to moderate the amount of leasing activity because you have less space available to lease. So, we continue to see, like I said, about 2 points to 3 points gain in occupancy quarter-over-quarter.
Vikram Malhotra
Thank you.
Operator
Your next question is a follow-up from the line of Omotayo Okusanya with Credit Suisse. Please go ahead. Omotayo, your line is open. Check to see if you are on mute?
Omotayo Okusanya
Oh, hi. Apologize for that. Just to follow-on, the contracts that were signed this quarter that were either management fees or revenue share agreement, could you talk a little bit about what markets you’re doing that in, where kind of conceptually it seems to make sense? And if there were any markets where you’ve kind of decided that doesn’t make sense for whatever reason?
Sandeep Mathrani
So again, you know, the locations, you know, we’ve done are predominantly in Munich, in Germany, we’ve done a few in Irving, Texas; San Antonio, Texas; Dallas, we opened quite a few in India. India, our occupancy is almost maybe 90% or so. And in India, we’ve been EBITDA positive through the whole year. It’s performing incredibly well. It’s even cash flow positive in India. So, in India, we, you know, we own 27% of the business and we collect franchise fees. We’ve done quite a few locations.
In India, going back to the conversation about SMB versus enterprise, India is a predominantly enterprise market to almost 70% enterprise market. And actually the slowdown in the U.S. has created an acceleration in India and in Singapore, by the way. So, we see again, Israel is about 90% occupied and EBITDA positive. So, we’ve opened a few locations in Israel. We opened a location in Lisbon, Portugal, which is basically, was backed by a member. So, we opened it pre-leased, if you will.
And so those – it’s obviously a lot of them being mainly international locations in Europe, in Israel, and in India, a very few in the United States because obviously those markets as we’ve shown have done incredibly well. By the way, the market of Singapore is benefiting tremendously from relocations from Hong Kong, down to Singapore. And so, we are benefiting in, I call it, the [China plus one] [ph] policy.
So, all our Southeast Asian locations are occupied in the mid-80s and in many locations, margins have been very high. I mean, this segment, you guys asked last time to provide the bar chart of how many markets are above 70% occupied and we’ve demonstrated that and obviously the good part about that is the margin, which we talked about, if you’re above 70% occupied, what would the margin be? And I think we’ve always talked about as being 27% to 30% and we have had those numbers at 27% in margins when it goes above 70% occupied.
So, effectively, the building margin for the whole consolidated business, including the ones that are lower than 70% occupied is now at 13%, which is, I think, Andre talked about the building margin, which has grown quite large. So, again, the trend has continued to see the shift as to higher occupancy building. So, those are the – that sort of some of the feedback.
Omotayo Okusanya
Alright. [Technical Difficulty]
Sandeep Mathrani
We couldn’t hear you, Omotayo.
Omotayo Okusanya
[Technical Difficulty]. Thank you.
Operator
And at this time, there are no further questions. I will now turn the call over to Sandeep for any closing remarks.
Sandeep Mathrani
Thank you for joining our earnings call this morning. As we continue to make sure that we have achieved profitability, we are cognizant of our increasing our revenues and continuing to drive down our expenses. Our progress here would not be possible without the many contributions of my colleagues around the world. I’m internally grateful for the hard work of our employee base throughout the world. With that, please have a good day. Goodbye.
Operator
Thank you all for joining today’s conference call. You may now disconnect.
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