Wework, in its first earnings report as a public company, shows more big losses

Wework reported its first quarterly results as a public company Monday, revealing that its coworking business is still racking up big losses and hemorrhaging cash.

But Wework pointed to an uptick in customer leasing activity in the quarter as evidence that it was positioned to do well in office-space markets that had been upended by the pandemic.

Wework, which became public through a merger last month with a special purpose acquisition company, or SPAC, reported a net loss of $802 million in the third quarter, an improvement on the loss of $941 million in the same period a year earlier. Wework’s revenue, however, declined to $661 million in the latest third quarter, from $811 million a year earlier. The company reduced its loss by cutting its expenses significantly.

Wework leases huge amounts of office space and then charges its customers — large companies, small businesses and individuals — to use it. Customers might prefer being in a Wework space because the lease agreements are shorter than for traditional office space, allowing for more flexibility. But the drawback for Wework is that its customers can move out on short notice.

Wework was on the brink of bankruptcy in 2019 after it decided to call off an initial public offering, but the company was bailed out by Softbank, the Japanese conglomerate, which is now its largest shareholder. In the debacle, Adam Neumann, a cofounder, stepped down as CEO and left the company, but he remains a shareholder. Neumann spoke about his role in the imbroglio last week.

Wework spent much of the pandemic trying to cut costs and reduce the size of its network. It did so in part by negotiating lower cost leases with its landlords and by getting out of certain properties. Its operating expenses in the third quarter were $542 million lower than in the year-earlier quarter.

Even so, Wework’s business is still using up significant amounts of cash, rather than producing positive cash flows.

In the first nine months of the year, Wework’s operations consumed $1.5 billion of cash. But the cash drain may be slowing. In the third quarter of this year, its operations used $380 million of cash, less than the $618 million it spent in the second quarter. After the SPAC merger, Wework had $1.3 billion of cash on its balance sheet. In addition, Wework can draw on a large credit line from Softbank.

The work-from-home trend ushered in by the pandemic has led many companies to curb their appetite for office space under traditional leases. Wework hopes that these companies will use its space when they do want workers to get together. And Wework believes flexible office space will grow in the coming years to account for a much larger share of the overall market.

Wework CEO Sandeep Mathrani said Monday that the company had already seen evidence of this. “For two quarters in a row, we have shown how flex office has taken a growing share of the demand,” he said on a call with Wall Street analysts.

But in many big cities, the office-space market faces challenges. Big companies have said they are allowing employees to work all or part of the week from home, reducing their demand for office space. As a result, there is a glut of vacant space, which has forced landlords to slash their rents on traditional leases. And these lower rents could, in turn, lure companies looking for space away from Wework.

Still, the company’s third-quarter numbers showed some signs of recovery.

Physical memberships, which give customers access to Wework spaces, jumped to 432,000, up from 386,000 in the second quarter, though the latest number was still below the 480,000 in the third quarter of last year.

Wework’s memberships were equivalent to 56% of the desks it has available in the third quarter. The company expects that occupancy rate to increase next year and lead to an improvement in its financial performance.

Mathrani said Monday that the company was on track to be profitable in the first half of next year, using a financial measurement known as Ebitda — earnings before interest, taxes, depreciation and amortization. It is easier to report profits with Ebitda because it excludes big cost items, and Wework’s “adjusted Ebitda” leaves out still more. In the third quarter, Wework had an adjusted Ebitda loss of $356 million, much less than the $802 million net loss it reported using generally accepted accounting principles.

Wework’s stock was 3% higher in afternoon trading.