August 30, 2019 Adam Neumann Chief Executive Officer The We Company 115 West 18th Street New York, NY 10011 Re: The We Company Registration Statement on Form S-1 Filed August 14, 2019 File No. 333-233259 Dear Mr. Neumann: We have reviewed your registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter by amending your registration statement and providing the requested information. If you do not believe our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response. After reviewing any amendment to your registration statement and the information you provide in response to these comments, we may have additional comments. Registration Statement on Form S-1 Cover Page 1. Please highlight the lead or managing underwriter(s) as required by Item 501(b)(8)(i) of Regulation S-K. Prospectus Summary, page 1 2. We note the chart on page 5 depicting a timeline for your locations. Your chart seems to indicate that your locations “breakeven” prior to the location opening for members. Please revise to make clear the number or percentage of your mature locations that are profitable and operate on a cash flow positive basis. When revising your disclosure, also clarify if profitability and cash flow for your mature locations are based on results under GAAP. Adam Neumann The We Company August 30, 2019 Page 2 3. We note the emphasis on your total market opportunity of $3 trillion. Please revise to balance this disclosure with accompanying disclosure that you expect average revenue per WeWork membership to decline as you expand internationally into markets with lower margins. 4. Balance your disclosure of committed revenue backlog on page 4 and elsewhere with equally prominent disclosure of your non-cancelable operating lease commitments of $33.9 billion. 5. In light of your expansion into markets where tenant improvement allowances are less common and your plans to enhance your global real estate platform, qualify your expectations of focusing on more capital-efficient approaches to growth which include landlords currently providing tenant improvement allowances that help fund your buildouts. Recent Developments, page 14 6. Revise to highlight that your ability to secure the credit facility is dependent upon this offering yielding gross proceeds of at least $3.0 billion. Risk Factors Risks Relating to This Offering and Ownership of Our Class A Common Stock Adam Neumann will control a majority of our voting stock upon completion of this offering, page 46 7. Disclose the specific provisions in your restated certificate of incorporation and other governance documents addressing corporate opportunities. Explain the scope of any such provisions and describe how the potential conflicts of interest could have a material adverse effect on your business, financial condition, results of operations, or prospects. To the extent material, include risk factor disclosure regarding any corporate opportunity waiver by the company with respect to the activities of Mr. Neumann, Ark, or other related parties. b3 Adam Neumann The We Company August 30, 2019 Page 3 b3 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview, page 65 10. We note your statement on page 65 that, “As of June 1, 2019, 40% of our memberships were with organizations with more than 500 employees (which we refer to as enterprise members)... We expect enterprise to continue to be our fastest growing membership type.” On page 68 you also state, “Memberships are the cumulative number of WeWork memberships and on-demand memberships.” In this regard, it appears you have several categories of membership types. In order to give investors more insight and understanding of your business, disclose your various membership types and the revenue associated with each membership type. For each membership type, disclose the average length of their contractual commitments. 11. We also note disclosure regarding revenue retention and your emphasis on a revenue run rate metric. In order to give investors further understanding of the continuity of your revenue stream, please disclose what percentage of your revenue run rate relates to ondemand memberships, month to month memberships, less than a year memberships, greater than a year memberships, etc. For on-demand memberships and month to month memberships, disclose the renewal rates. Please also disclose how you determined the renewal rates. Committed Revenue Backlog, page 69 12. You state on page 69 that, “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.” However on page 38 you state that, "Revenue reflected in our committed revenue backlog may be affected by unexpected cancellations or renegotiations.” These two statements appear to contradict each other. Please clarify and disclose how “non-cancelable” contracts included in committed revenue backlog may be canceled or renegotiated. Also disclose the average term of contracts included in committed revenue backlog. Adam Neumann The We Company August 30, 2019 Page 4 Contribution Margin, page 70 13. We note that you evaluate the performance of your business using the non-GAAP measure “Contribution Margin.” As currently calculated and presented, we believe that your measure could be misleading based on the following: • • • • The measure “Contribution Margin excluding non-cash GAAP straight-line lease cost” ignores the recognition principles prescribed by ASC 842, specifically paragraph 2025-6, resulting in a performance measure that excludes a material aspect of your lease costs and primary cost of sales. We understand from your disclosure on page 82 that there will be periods during which your non-GAAP measure will include revenues from leasing certain properties without the related lease costs. In this regard, we note that the average rent free period for your lease arrangements is nine months, with some leases containing provisions for significantly longer periods of free rent. We also note that the same property may start generating revenue as early as five months after your date of possession. Your measure excludes the straight-line aspect of lease cost, while including the benefit related to lease incentives. On page 72, you characterize Contribution Margin as a measure of unit economics or non-GAAP gross profit. Your current disclosure does not include a presentation of the most directly comparable financial measure, gross profit, calculated and presented in accordance with GAAP. Gross profit should contemplate all cost of sales per Rule 503 of Regulation S-X including, but not limited to pre-opening costs, depreciation or amortization expense associated with leasehold improvements, equipment and furniture, which are an integral part of your customer offerings. Refer to Item 10(e)(1)(i)(A) of Regulation S-K and footnote 27 of the Final Rule: Conditions for Use of Non-GAAP Financial Measures. Please remove disclosure of this measure throughout your registration statement. Illustrative Annual Economics, page 80 14. Please explain to readers and tell us how your assumed workstation utilization rate of 100% is realistic. Describe for us your actual workstation utilization rates for mature locations and explain to us your consideration of providing illustrative metrics prepared on a historical or a budgeted basis. 15. Similarly, tell us why you believe that your metrics for Average Revenue per WeWork Membership and Implied Annual Revenue are realistic and not misleading estimates in light of your ongoing expansion into international markets in which you are likely to earn lower membership fees per member than has been your historical experience. Adam Neumann The We Company August 30, 2019 Page 5 16. Tell us why you believe it is appropriate to disclose that 39% of your total locations comprise 724,000 potential workstations for which you have not entered into a lease. Such a metric appears to be unduly aspirational. Membership Retention, page 84 17. We note your membership retention rate in excess of 100%. Please revise the description of this measure to more accurately characterize the nature of the information being conveyed (i.e., removing the “retention” label). Because this measure is affected by organic growth, confirm for all periods presented that you have not had any material declines in the number of new distinct members that have been masked by dramatic increases from existing members. If significant, address any historic differences in the retention rates of your various membership categories. Developed Markets Case Study, page 85 18. Explain why you exclude certain locations from your developed markets case study. Key Factors Affecting the Comparability of Our Results Global Expansion, page 85 19. Please discuss how you intend to structure the material terms of participating leases and management agreements where you "share some of [y]our contribution margin with landlords in exchange for those landlords funding [y]our capital expenditures." Additionally, to provide context, quantify the percentage of your total leases consisting of such alternative arrangements. 20. Disclose that free rent periods in leases are less customary in the regions into which you are expanding, thereby increasing the proportion of non-mature locations that have not yet achieved full occupancy but are paying full lease costs. Recent Developments Debt Financing Transactions, page 86 21. Disclose the specific provisions of the indenture governing your senior notes that would restrict your ability to draw the second and third tranches of the Delayed Draw Term Facility and clarify whether you expect those tranches to be available to you in the foreseeable future. Interest and Other Income (Expense), Net, page 108 22. Please explain to readers, in plain English, why you had a gain on the change in fair value of related party financial instruments of $486.2 million. Adam Neumann The We Company August 30, 2019 Page 6 Quarterly Results of Operations, page 112 23. The measure “Adjusted EBITDA excluding non-cash GAAP straight-line lease cost” ignores the recognition principles prescribed by ASC 842, specifically paragraph 20-25-6, resulting in a performance measure that excludes a material aspect of your lease costs and primary cost of sales. Please revise this measure throughout your registration statement to exclude the adjustment that adds back the straight-line aspect of your lease cost. Description of Capital Stock Provisions in Our Restated Certificate of Incorporation and Amended and Restated Bylaws Exclusive Forum, page 193 24. Provide risk factor disclosure regarding the requirement that certain claims be brought in 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). Disclose whether this provision applies solely to state law claims. If it does not apply solely to state law claims, then please note that Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. If this provision is intended to apply solely to state law claims, please also ensure that the exclusive forum provision/s in the restated certificate of incorporation and amended and restated bylaws states this clearly. Certain Relationships and Related Party Transactions Relationships and Transactions with Adam Neumann, our Co-Founder and Chief Executive Officer, page 197 25. Please add a chart at the beginning of this section reflecting all disclosed transactions involving Mr. Neumann. 26. We note that the company issued approximately $5.9 million of partnership interests in the We Company Partnership to WE Holdings LLC in connection with the rights related to the "we" trademark. Quantify the number of partnership units issued and disclose here that Mr. Neumann is the controller and managing member of WE Holdings LLC. 27. Qualify your disclosure that Mr. Neumann has not sold any shares of the company since October 2017 by addressing the fact that he has monetized his ownership of shares in ways other than direct sales (e.g., the receipt of loans collateralized by his shares). Adam Neumann The We Company August 30, 2019 Page 7 Profits Interests, page 204 28. Please expand your disclosure of the profits interests to: • quantify the amount of issued interests; • explain to readers in detail how the interests function; • clarify how the structure involving the profits interests will be more efficient for the We Company for U.S. federal income tax purposes than issuing stock options; • explain why holders of vested profits interests may be entitled to limited catch-up distributions; and • describe the vesting terms and conditions. Financial Statements Consolidated Statements of Operations, page F-5 29. Please revise the face of the Statements of Operations to identify those line items that represent costs and expenses applicable to sales and revenues pursuant to Rule 5-03(b)(2) of Regulation S-X. 30. Please specify the amounts of depreciation and amortization expense attributable to Location Operating Expenses and Other Operating Expenses within the parenthetical note to each line item. Unaudited Pro Forma Balance Sheet Information, page F-76 31. Please give effect to the July 2019 reorganization in your pro forma balance sheet presentation. We note your disclosure on page 19, in the 4th footnote on page 186, page 190 and page 204 that holders of partnership interests may exchange their partnership interests, together with the corresponding shares of your Class C common stock, for, at your option, shares of your Class B common stock or cash. Please disclose the terms of these exchange features as well as terms related to partnership distributions. Please tell us whether you plan to classify the non-controlling interests of the We Company Partnership outside of or as a component of permanent equity; and explain how you considered the unit holder's ability to opt for cash redemption in applying the guidance in FASB ASC 480-10-S99-3A, including Example 2 in paragraph 7, in formulating your view on classification. Also, please file the We Company Partnership agreement and the registration rights agreement as exhibits to your Form S-1. Adam Neumann The We Company August 30, 2019 Page 8 Note 4. Leasing Arrangements, page F-88 32. We note your disclosure on page F-88 that the incremental borrowing rate represents the rate of interest the company would have to pay to borrow “the funds necessary to obtain an asset of similar value to the right-of-use asset.” Please tell us the consideration you gave to the definition of incremental borrowing rate in ASC 842 which indicates it is the rate of interest that a lessee would have to pay to borrow “an amount equal to the lease payments.” 33. We note on page F-89 that your lease incentive receivables are related to tenant improvement allowances and broker commissions and represent a fixed future receipt due from the landlord. Please provide to us additional details regarding your broker commissions including the nature of commissions, how you earn the commissions and when they are payable from the lessor. Additionally, describe to us the basis for your accounting treatment as it relates to the broker commissions. b3 35. Regarding the $362.1 million in-substance non-recourse note issued in connection with an early exercise of stock options, please disclose on page F-118 how the note was settled. Adam Neumann The We Company August 30, 2019 Page 9 Exhibit Index, page II-5 36. We note the definitions of the Minimum Contribution Margin Covenant and the Minimum Liquidity Covenant in the Credit Facilities Commitment Letter, dated August 13, 2019 (Exhibit 10.18), do not include quantified minimum amounts. Please advise. General 37. With respect to the various graphical depictions of member case studies and testimonials you include between pages 128 and 150, confirm that you have received consents for the individuals quoted. Also clarify the relevance of imagery that does not appear to have a clear disclosure or investor protection purpose, such as the snapshot of a participant in the NYC Pride Parade. We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff. Refer to Rules 460 and 461 regarding requests for acceleration. Please allow adequate time for us to review any amendment prior to the requested effective date of the registration statement. You may contact Joseph Kempf, Senior Staff Accountant, at (202) 551-3352 or Robert S. Littlepage, Accounting Branch Chief, at (202) 551-3361 if you have questions regarding comments on the financial statements and related matters. Please contact Joshua Shainess, Attorney-Adviser, at (202) 551-7951 or Celeste M. Murphy, Legal Branch Chief, at (202) 5513257 with any other questions. Sincerely, Division of Corporation Finance Office of Telecommunications CORRESPONDENCE Page 1 of 21 [Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP] September 3, 2019 BY HAND AND EDGAR Division of Corporation Finance Office of Telecommunications Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Attn: Joshua Shainess Celeste M. Murphy Re: The We Company Registration Statement on Form S-1 Filed August 14, 2019 File No. 333-233259 Dear Mr. Shainess and Ms. Murphy: On behalf of our client, The We Company, a Delaware corporation (the “Company”), we hereby provide responses to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated August 30, 2019 (the “Comment Letter”) with respect to the above-referenced Registration Statement on Form S-1 filed with the Commission on August 14, 2019 (“Prior Filing”). Concurrently with the submission of this letter, the Company is publicly submitting, through the Commission’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system, an amendment to the Registration Statement on Form S-1 (the “Registration Statement”) in response to the Staff’s comments and to reflect certain other changes. For the Staff’s convenience, we will also deliver two copies of the Registration Statement marked to show changes from the Prior Filing. The headings and paragraph numbers in this letter correspond to those contained in the Comment Letter and, to facilitate the Staff’s review, we have reproduced the text of the Staff’s comments in italics below. Capitalized terms used but not defined herein have the meanings given to them in the Registration Statement. All references to page numbers and captions (other than those in the Staff’s comments and unless otherwise stated) correspond to the page numbers and captions in the Registration Statement. CORRESP Page 1 of 10 September 4, 2019 BY HAND AND EDGAR Division of Corporation Finance Office of Telecommunications Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Attn: Joshua Shainess Celeste M. Murphy Re: The We Company Registration Statement on Form S-1 Filed August 14, 2019 File No. 333-233259 Dear Mr. Shainess and Ms. Murphy: This letter is submitted on behalf of The We Company, a Delaware corporation (the “Company”), in response to certain of the comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in a letter to the Company dated August 30, 2019 (the “Comment Letter”) with respect to the above-referenced Registration Statement on Form S-1 filed with the Commission on August 14, 2019 (“Prior Filing”). This letter reflects the views of the Company and the information provided in this letter is based on the information provided by the Company. Concurrently with the submission of this letter, the Company is publicly submitting, through the Commission’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system, a revised Registration Statement on Form S-1 (the “Registration Statement”) in response to the Staff’s comments and to reflect certain other changes. For the Staff’s convenience, we will also deliver two copies of the Registration Statement marked to show changes from the Prior Filing. In this letter, each of the Staff’s comments discussed is indicated in italics, followed by the Company’s responses thereto. Page number references in the responses below are to the page numbers in the Registration Statement. Capitalized terms used but not defined herein have the meanings given to them in the Registration Statement. https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 2 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 2 Comment 13: Contribution Margin, page 70 We note that you evaluate the performance of your business using the non-GAAP measure “Contribution Margin.” As currently calculated and presented, we believe that your measure could be misleading based on the following: • The measure “Contribution Margin excluding non-cash GAAP straight-line lease cost” ignores the recognition principles prescribed by ASC 842, specifically paragraph 20-25-6, resulting in a performance measure that excludes a material aspect of your lease costs and primary cost of sales. • We understand from your disclosure on page 82 that there will be periods during which your non-GAAP measure will include revenues from leasing certain properties without the related lease costs. In this regard, we note that the average rent free period for your lease arrangements is nine months, with some leases containing provisions for significantly longer periods of free rent. We also note that the same property may start generating revenue as early as five months after your date of possession. • Your measure excludes the straight-line aspect of lease cost, while including the benefit related to lease incentives. • On page 72, you characterize Contribution Margin as a measure of unit economics or non-GAAP gross profit. Your current disclosure does not include a presentation of the most directly comparable financial measure, gross profit, calculated and presented in accordance with GAAP. Gross profit should contemplate all cost of sales per Rule 5-03 of Regulation S-X including, but not limited to pre-opening costs, depreciation or amortization expense associated with leasehold improvements, equipment and furniture, which are an integral part of your customer offerings. Refer to Item 10(e)(1)(i)(A) of Regulation S-K and footnote 27 of the Final Rule: Conditions for Use of Non-GAAP Financial Measures. Please remove disclosure of this measure throughout your registration statement. Response: The Company respectfully acknowledges the Staff’s comments and that the Company has had various communications and meetings with the Staff over the last several months. For the reasons discussed below, the Company believes that its presentation of Contribution Margin, as currently labeled and taken together with the information and related discussions in the Registration Statement accompanying such presentation, is appropriate, not misleading and provides meaningful and clear information for its investors about the economic performance of the Company’s operating locations. The Company respectfully submits that its presentation of Contribution Margin complies with both the letter and spirit of the SEC’s rules on the disclosure of non-GAAP financial matters and is not in violation of Regulation G or Item 10(e) of Regulation S-K. However, in light of the Company’s desire to find a course forward, the Company proposes for your consideration a revision to the Company’s future disclosures of Contribution Margin to present only Contribution Margin including non-cash GAAP straight-line lease cost and then to provide the amount and description of non-cash GAAP straight-line lease cost impact immediately next to such measure, and to not present Contribution Margin excluding non-cash GAAP straight-line lease cost (as shown in the attached changed pages removing Contribution Margin excluding non-cash GAAP straight-line lease cost), while otherwise leaving the calculation and presentation of Contribution Margin as reflected in the Registration Statement being filed today. If such an approach would address your concerns and allow the Company to move forward, the Company will include a revised presentation reflecting such an approach in the next amendment to the Registration Statement. https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 3 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 3 The Commission’s current rules pertaining to the disclosure of non-GAAP financial measures—found in Item 10(e) of Regulation S-K with regard to documents filed with the Commission and Regulation G with regard to all public statements in any forum made by a company registered with the Commission—were promulgated after the passage of the Sarbanes-Oxley Act of 2002 and are designed “to eliminate the manipulative or misleading use of non-GAAP financial measures and, at the same time, enhance the comparability associated with the use of that information.” The presentation of Contribution Margin provides an additional tool that the Company believes is useful to the investing public, including as a measure of unit economics for its operating locations and as used by the Company’s debt investors to assess the Company’s compliance with one of the financial covenants under its new $6 billion 2019 Credit Facility. In addition to traditional GAAP metrics, Contribution Margin is one of the primary metrics used by management in evaluating the Company’s performance. For example, the Company uses Contribution Margin to evaluate the operating performance of its operating locations and to forecast future results, make strategic decisions and allocate Company resources. At the same time, the Company’s disclosure makes clear that Contribution Margin is neither superior to nor a replacement for loss from operations, the most directly comparable GAAP measure. As set forth in Rule 100(b) of Regulation G, a non-GAAP financial measure, “taken together with the information accompanying that measure and any other accompanying discussion of that measure” cannot “contain[] an untrue statement of a material fact or omit[] to state a material fact necessary in order to make the presentation of the non-GAAP financial measure, in light of the circumstances under which it is presented, not misleading.” The Company embraces this fundamental principle and, as described below, in preparing the Registration Statement, the Company has taken particular note of the language underlined above which was included in Rule 100(b). First Bullet (re: exclusion of GAAP straight-line lease cost) The Company believes that the presentation of Contribution Margin, which includes presentation of Contribution Margin excluding non-cash GAAP straight-line lease cost, together with the accompanying disclosure, including the presentation, with equal or greater prominence, of Contribution Margin including non-cash GAAP straight-line lease cost, complies with the SEC’s rules pertaining to non-GAAP financial measures in respect of the Registration Statement. The Company acknowledges the Staff’s concern that this non-GAAP measure could be misleading in violation of Regulation G but respectfully disagrees. The Company’s two non-GAAP measures of “Contribution margin including non-cash GAAP straight-line lease cost” and “Contribution margin excluding non-cash GAAP straight-line lease cost” are presented in a manner that is fully transparent. The Company has provided investors with relevant details for each component and adjustment to allow investors to assess the usefulness of the measure and evaluate the adjustment. This is particularly the case with respect to the most significant adjustment, the adjustment for the non-cash impact of “free rent” periods and lease cost escalation clauses required to be recognized on a straight-line basis under GAAP. In the case of this adjustment, the Company has, in each instance that Contribution Margin excluding non-cash GAAP straight-line lease cost is presented in the Registration Statement, also presented both the amount of this adjustment and, with equal or greater prominence, Contribution Margin including non-cash GAAP straight-line lease cost. In addition, in order to further comply with Regulation G, the Registration Statement also includes full reconciliations to loss from operations, which the Company believes is the most directly comparable financial measure calculated in accordance with GAAP, and as supplemental information the Company provides reconciliations to membership and service revenue (calculated in accordance with GAAP). https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 4 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 4 The Staff’s comment states that “[t]he measure ‘Contribution Margin excluding non-cash GAAP straight-line lease cost’ ignores the recognition principles prescribed by ASC 842, specifically paragraph 20-25-6, resulting in a performance measure that excludes a material aspect of your lease costs and primary cost of sales,” and the Company understands from conversations with the Staff that this could be considered misleading in violation of the principle enunciated in the Staff’s Non-GAAP Compliance and Disclosure Interpretation 100.01. The Company respectfully disagrees, however, and would note, respectfully, that whether a non-GAAP financial measure is misleading is ultimately a legal determination which must be informed both by Supreme Court and other judicial precedent and by Commission rules and guidance relating to materiality. The Company has been attentive to the language of Regulation G to consider the “information accompanying that measure” and would point out that its disclosure now includes presentation of a second non-GAAP measure, “Contribution Margin including non-cash GAAP straight-line lease cost,” which helps draw both a clearer picture of how the Company’s Contribution Margin non-GAAP measures are derived from the most directly comparable GAAP measure and highlights the impact of the GAAP straight-line lease cost adjustment. The Company submits that the entirety of its disclosure around its Contribution Margin measures obviates the risk that such could be materially misleading. Further, the Registration Statement, again attentive to the language of Regulation G, contains “other accompanying discussion” of Contribution Margin, including the Q&A discussion on pages 72-79, which explains in detail the usefulness of Contribution Margin with and without the inclusion of non-cash GAAP straight-line lease cost. In particular, the Company draws your attention to the answer, set forth here, to the question “How does contribution margin relate to the life-cycle 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.” https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 5 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 5 Given these relationships between lease cost and membership and service revenue, the Company believes that Contribution Margin excluding non-cash GAAP straight line lease cost, presented in appropriate context, provides meaningful additional information that can be useful to investors just as it is to management. The Company’s disclosure now draws a clear roadmap for investors of the calculation and meaning of this significant adjustment. It is in this context that the presentation and discussion of Contribution Margin excluding non-cash GAAP straight-line lease cost must be viewed. It supplements, rather than replaces, information in the GAAP financial statements. The Company believes that the joint provision of both Contribution Margin including non-cash GAAP straight-line lease cost and Contribution Margin excluding non-cash GAAP straight-line lease cost, along with the accompanying presentation of the components of the adjustments to such measures and the explanation of the importance and usefulness of these measures, is clear, and the Company respectfully disagrees with the suggestion that the current calculation and presentation could be misleading. Second bullet (re: free rent periods) With regard to the Staff’s note “that there will be periods during which []our non-GAAP measure will include revenues from leasing certain properties without the related lease costs,” the Company wishes to respectfully point out that while some locations may earn revenue for a short period of time during which there are no related lease costs, the limited period of time in which this occurs is only a one-time period toward the beginning of the opening of a new location. The Company believes the impact is immaterial and does not materially distort the Company’s Contribution Margin measures. The Company’s locations do not typically open at full occupancy and it takes time before a meaningful amount of revenue is earned; the “free rent” periods received by the Company assist in limiting the Company’s cash losses during this ramp up stage. The immaterial impact of “free rent” periods while a location is beginning to earn revenue is demonstrated by the fact that the Company’s Contribution Margin excluding non-cash GAAP straight-line lease cost was 24% for the three months ended June 30, 2019 for both mature locations that are not benefiting from “free rent” periods and for non-mature locations that may be benefiting from “free rent” periods. For the six months ended June 30, 2019, non-mature locations experienced an average Contribution Margin excluding non-cash GAAP straight-line lease cost of 26% in comparison to 24% for mature locations and 25% for the Company as a whole. The nature of these comparisons further supports the Company’s belief that Contribution Margin excluding non-cash GAAP straight-line lease cost corresponds more closely over time to the revenue being generated from a location—one of the primary reasons the Company believes Contribution Margin excluding non-cash GAAP straight-line lease cost is a useful supplemental measure and is not misleading. Third bullet (re: lease incentives) The Comment Letter further notes that Contribution Margin “excludes the straight-line aspect of lease cost, while including the benefit related to lease incentives.” The Company respectfully submits that the Registration Statement is fully transparent about its treatment of lease incentives and contains robust disclosure regarding the treatment of the benefit related to lease incentives and why those amounts are not adjusted out of the Company’s two Contribution Margin non-GAAP measures. Importantly, the Company views the decision to negotiate significant tenant improvement allowances as a financing decision and not an operating decision. The cash the Company receives for lease incentives is used to offset the significant capital expenditure investment the Company makes in scaling its location portfolio. Had it chosen to structure its lease agreements without these incentives and instead financed that portion of its capital expenditures through a traditional loan or through draws under the Company’s credit facility, the Company believes that its overall lease cost payments would likely be reduced, and the incremental cash could have instead been used to reduce debt and pay interest, which payments would not have impacted its calculation of Contribution Margin. As a result, the Company believes that including the amortization of lease incentives in its calculations of Contribution Margin results in a useful supplemental measure of operating performance that is neutral regarding the financing decisions made with respect to its capital expenditures. The Company believes that including the impact of amortization of lease incentives also helps it compare the performance of locations across its portfolio, as in some cases— particularly in certain non-U.S. jurisdictions where the Company is opening new locations—the Company has not always been able to negotiate a tenant improvement allowance into the terms of its leases. https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 6 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 6 Unlike non-cash GAAP straight-line lease cost, whose amortization is a timing difference that will net to zero over the life of the lease on both a GAAP basis and non-GAAP basis, if the Company did not leave the benefit from the straight-line amortization of the lease incentives in its location operating expenses, such benefit would never be recognized on a non-GAAP basis. Because lease incentives represent significant one-time cash receipts that are typically received towards the beginning of a lease, the Company believes that to include such one-time amounts in our non-GAAP measures on a cash basis could result in a non-GAAP measure that is misleading. As an example, during the six months ended June 30, 2019 and 2018, the Company recognized as a component of its location operation expenses a benefit from the amortization of lease incentives in the amount of $69.4 million and $39.0 million, respectively, in comparison to lease incentive cash receipts over the same periods in the amount of $486.0 million and $265.6 million, respectively. The benefit associated with the amortization of lease incentives is clearly and prominently disclosed in both the consolidated financial statements (Footnote 4 to the interim condensed consolidated financial statements and Footnote 17 to the annual consolidated financial statements) and in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 75-6 and 96-104 of the Registration Statement. Investors and other users of the Company’s financial statements have sufficient information to understand the impact this amount has on the Company’s Contribution Margin measures and to determine for themselves if they would prefer to analyze the Company excluding or including this benefit. Fourth bullet (re: reconciliation to gross profit) The Company respectfully advises the Staff that it has revised the disclosure on page 74 of the Registration Statement to remove reference to the term non-GAAP gross profit in response to the Staff’s comment. Contribution Margin is a measure of non-GAAP unit economics (not of gross profit) and the Company does not present gross profit on its consolidated statement of operations. As set forth in footnote 26 of the Final Rule: Conditions for Use of Non-GAAP Financial Measures, the Commission has stated a belief that “it is most appropriate to provide registrants with the flexibility to best make the determination as to which is the ‘most directly comparable financial measure calculated and presented in accordance with GAAP’” and provided guidance therein that the Staff “has been, and continues to be, of the view that...nonGAAP financial measures that depict performance should be balanced with net income, or income from continuing operations, taken from the statement of operations.” Accordingly, and because the Company believes its Contribution Margin non-GAAP measures are useful supplemental measures of operating performance—they provide the Company and investors another lens through which to analyze the core operating performance of its locations— the Company views loss from operations as the most directly comparable financial measure calculated in accordance with GAAP as presented on the Company’s consolidated statement of operations. The Company thus provides reconciliations of its Contribution Margin non-GAAP measures to loss from operations as presented on its consolidated statement of operations. The Company also utilizes Contribution Margin as a growth measure and thus provides, as additional supplementary information, reconciliations of its two Contribution Margin non-GAAP measures to membership and service revenue. https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 7 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 7 Conclusion re: comment 13 For all of the reasons noted above, the Company believes that the presentation of both Contribution Margin including non-cash GAAP straight-line lease cost and Contribution Margin excluding non-cash GAAP straight-line lease cost, each as presently calculated and presented, provides investors with useful information that can provide meaningful insights into the operating performance of its locations in addition to greater transparency with respect to how the Company’s management team evaluates its business and financial and operational decision making. Accordingly, the Company believes that such measures are not misleading and Rule 100(b) of Regulation G should not be read to prohibit their disclosure. The Company recognizes that this belief is an important determination involving a legal judgment as to whether a presentation is misleading. The words of Regulation G provide guidance—they specifically provide that this judgment must be made while taking into account “the information accompanying that measure and any other accompanying discussion of that measure.” Given the quality, clarity and placement of accompanying information, and the accompanying discussion surrounding the Company’s presentation of its two Contribution Margin non-GAAP measures in the Registration Statement, the Company believes that the disclosure in the Registration Statement of these measures is appropriate. Comment 23: Quarterly Results of Operations, page 112 The measure “Adjusted EBITDA excluding non-cash GAAP straight-line lease cost” ignores the recognition principles prescribed by ASC 842, specifically paragraph 20-25-6, resulting in a performance measure that excludes a material aspect of your lease costs and primary cost of sales. Please revise this measure throughout your registration statement to exclude the adjustment that adds back the straight-line aspect of your lease cost. Response: The Company respectfully advises the Staff that, for reasons comparable to those given in response to comment 13 above, including the quality, clarity and placement of accompanying information and the accompanying discussion surrounding the Company’s presentation of its two Adjusted EBITDA non-GAAP measures, it respectfully disagrees with the Staff’s comment. Note that the Company now presents a second, clearly labeled and described measure titled “Adjusted EBITDA including non-cash GAAP straight-line lease cost”—which includes the impact of “free rent” periods and lease cost escalation clauses on a straight-line basis for the terms of the Company’s leases—in order to draw a clearer roadmap for investors through the calculation, meaning and importance of the Company’s Adjusted EBITDA non-GAAP measures. However, in light of the Company’s desire to find a course forward, similar to the proposal above, the Company proposes for your consideration a revision to the Company’s future disclosures of Adjusted EBITDA to present only Adjusted EBITDA including non-cash GAAP straight-line lease cost and then provide the amount and description of non-cash GAAP straight-line lease cost impact immediately next to such measure, and to not present Adjusted EBITDA excluding non-cash GAAP straight-line lease cost (as shown in the attached changed pages removing Adjusted EBITDA excluding non-cash GAAP straight-line lease cost). Again, if such an approach would address your concerns and allow the Company to move forward, the Company will include a revised presentation reflecting such an approach in the next amendment to the Registration Statement. https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 8 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 8 The Company greatly appreciates the Staff’s thoughtful review of its disclosures as we work together to provide investors with the information that will best enable them to assess the Company’s performance in making their investment decisions. If you have questions or would like to further discuss the possible course forward, please do not hesitate to contact me at (212) 474-1732. Very truly yours, /s/ John. W. White John W. White https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 9 of 10 Mr. Joshua Shainess Securities and Exchange Commission September 4, 2019 Page 9 Copies w/ encls. to: Joseph Kempf Robert S. Littlepage Division of Corporation Finance Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Adam Neumann, Chief Executive Officer Jen Berrent, Co-President and Chief Legal Officer Jared DeMatteis, Deputy Chief Legal Officer The We Company 115 West 18th Street New York, NY 10011 Graham Robinson Ryan J. Dzierniejko Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Roxane Reardon John Ericson Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 CORRESP Page 10 of 10 Proposed changed pages referenced on pages 2 and 7 of this letter removing Contribution Margin excluding non-GAAP straight-line lease cost and Adjusted EBITDA excluding non-GAAP straight-line lease cost https://www.edgar.sec.gov/AR/DisplayDocument.do?step=docOnly&accessionNumber=0... 11/8/2019 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 excluding non-cash GAAP straight-line lease cost, 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. 42 Contribution Margin including straight-line lease cost In evaluating the performance of our business, we supplement our GAAP results by evaluating our contribution margin including non-cash GAAP straight-line lease cost both in the aggregate and on a location-by-location basis. We also ▲ review contribution margin as a percentage of membership and service revenue and separately present the impact of ▲ ▲ non-cash GAAP straight-line lease cost on our contribution margin, as discussed below. What is contribution margin including straight-line lease cost? 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. ▲ “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) Contribution margin including non-cash GAAP straight-line lease cost Impact of Non-cash GAAP straight-line lease cost on contribution margin $268 $198 $117 $162 $199 $142 $93 $3 $71 2016 2017 2018 1H 2018 1H 2019 $84 As a % of membership and service revenue: ▲ Contribution margin including non-cash GAAP straight-line lease cost 1% 8% 12% 12% 10% Impact of Non-cash GAAP straight-line lease cost on contribution margin 21% 19% 16% 16% 15% 72 The following table reconciles our loss from operations (the most directly comparable financial measure calculated in accordance with GAAP) to our contribution margin including non-cash GAAP straight-line lease cost and presents the ▲ impact of non-cash GAAP straight-line cost on our contribution margin for the periods presented: Year Ended December 31, (Amounts in thousands) 2016 2017 2018 Six Months Ended June 30, 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 straightline lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,220 $ 70,834 $ 199,000 $ 84,408 $ 141,784 Impact of non-cash GAAP straight-line lease cost (as included in location operating expenses) on contribution margin (d) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,723 $ 162,313 $ 268,125 $ 117,178 $ 198,124 ▲ › As additional supplemental information, the following table also reconciles our membership and service revenue (calculated in accordance with GAAP) to our contribution margin including non-cash GAAP straight-line lease cost and ▲ presents impact of non-cash GAAP straight-line lease cost on our contribution margin for the periods presented: Year Ended December 31, (Amounts in thousands) 2016 2017 2018 Six Months Ended June 30, 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 Contribution margin including non-cash GAAP straightline lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,220 $ 70,834 $ Impact of non-cash GAAP straight-line lease cost (as included in location operating expenses) on contribution margin (d) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,793 6,420 25,953 199,000 $ 84,408 $ 141,784 268,125 $ 117,178 $ 198,124 ▲ 92,723 $ 162,313 $ (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 separately evaluate the impact of non-cash straight-line lease cost on contribution margin?” below for additional detail about non-cash GAAP ▲straight-line lease cost. In connection with the preparation of 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 are comparable to the six months ended June 30, 2019. Our discussion and analysis of our consolidated 73 › (e) 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. Excludes other revenue not related to membership and service revenue. Contribution Margin for the Six Months Ended June 30, 2019 (in millions) $1,349 ($638) ($371) $142 ($198) Memberships & services revenue % membership & service revenue: ▲ (1) (2) Adjusted lease cost(1) Other adjusted location operating expenses(2) Impact of Non-cash GAAP straight-line lease cost on contribution margin Contribution margin including non-cash GAAP straight-line lease cost 47% 28% 15% 10% 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. 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 measure is a useful ▲ supplemental measures of operating performance because it allows us to analyze the core operating performance of ▲ our locations. Contribution margin is a measure of non-GAAP unit economics that can be determined on a location by ▲ location basis. We also separately evaluate the impact of non-cash GAAP straight-line lease cost on contribution margin as this allows management and our board of directors to also understand 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 excluding the impact of non-cash straight-line lease cost. ▲ Contribution margin accounts 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 measure excludes 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. 74 • 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 ▲separately evaluate the impact of non-cash straight-line lease cost on contribution margin? 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 the ▲ impact of non-cash GAAP straight-line lease cost on contribution margin 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. 75 Why do we not ▲separately present▲ the amortization of lease incentives? While we separately present the non-cash GAAP straight-line lease cost impact on contribution margin, we do not ▲ separately present 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 interim unaudited condensed consolidated financial statements and Note 17 to our annual audited consolidated financial statements. 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 selfsustaining, as demonstrated by our strong organic growth. 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 measure. ▲ 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 76 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 straightlining 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) › Contribution margin including non-cash GAAP straight-line lease cost Impact of Non-cash GAAP straight-line lease cost on contribution margin $102 $96 $62 $68 $74 $82 $55 $39 $43 $62 $69 $48 $13 $22 $25 Q2’17 Q3’17 Q4’17 $40 $44 $52 Q1’18 Q2’18 Q3’18 Q4’18 Q1’19 Q2’19 As a % of membership and service revenue: Contribution margin including non-cash GAAP straight-line lease cost 6% 10% 9% 11% 12% 12% 11% 10% Impact of Non-cash GAAP straight-line lease cost on contribution margin 20% 18% 18% 16% 15% 15% 16% 14% ▲ 77 The following table reconciles our loss from operations (the most directly comparable financial measure calculated in accordance with GAAP) to our contribution margin and presents the impact of GAAP non-cash straight-line lease cost on contribution margin for the periods presented: Three Months Ended June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, 2017 2017 2017 2018 2018 2018 2018 2019 2019 (Amounts in thousands) Loss from operations . . . . . . . $(139,230) $ Less: Other revenue (a) . . . . . . . (444) Add: (b) Other operating expenses . . . — Pre-opening location expenses (b) . . . . . . . . . . . . . . 25,034 Sales and marketing expenses (b) . . . . . . . . . . . . . . 23,740 Growth and new market (b) development expenses ... 19,518 General and administrative expenses (b) . . . . . . . . . . . . . . 45,979 Depreciation and amortization (b) . . . . . . . . . . . . 38,005 Stock-based compensation expense (as included in location operating 675 expenses) (c) . . . . . . . . . . . . . . Contribution margin including non-cash GAAP straight-line lease cost . . . . $ (163,729) $ (6,789) (507,459) $(296,109) $(381,750) $ (11,503) (16,708) (33,107) (448,330) $ (28,302) (564,810) $(639,720) $(729,730) (46,298) (100,202) (86,446) — 1,677 15,161 26,863 31,631 33,133 36,163 45,026 29,525 49,102 73,232 83,751 97,530 103,318 112,798 142,335 41,150 59,816 62,811 77,078 109,559 129,281 150,999 169,047 26,853 46,128 58,679 115,412 118,510 184,672 141,844 227,883 52,665 318,773 78,194 77,063 90,696 111,533 218,537 171,373 42,166 51,494 62,043 75,375 77,590 98,506 124,855 131,069 810 16,570 2,833 3,587 3,071 13,302 22,657 3,296 13,277 $ 22,651 $ 24,598 $ 40,136 $ 44,272 $ 51,955 $ 62,637 $ 67,931 $ 73,853 39,049 $ 42,524 $ 47,997 $ 54,992 $ 62,186 $ 69,403 $ 81,544 $ 102,153 $ 95,971 Impact of non-cash GAAP ▲ straight-line lease cost (as included in location operating expenses) on contribution margin (d) . . . . . . . . . . . . . . . . . $ › As additional supplemental information, the following table also reconciles our membership and service revenue (calculated in accordance with GAAP) to our contribution margin and presents the impact of GAAP non-cash straightline lease cost on contribution margin for the periods presented: Three Months Ended (Amounts in thousands) June 30, 2017 September 30, December 31, March 31, 2017 2017 2018 Membership and Service Revenue (e) . . $ 197,897 $ Less: Location operating expenses (b) . . . . . . . . . (185,295) Add: Stock-based compensation expense(as included in location operating 675 expenses) (c) . . . . . . . . . 234,337 $ (212,496) 810 Contribution margin including non-cash GAAP straight-line lease cost . . . . . . . . . . . $ 13,277 $ 22,651 $ Impact of non-cash GAAP ▲ straight-line lease cost (as included in location operating expenses) (d) . . . . . . . . . $ 39,049 $ 42,524 $ June 30, 2018 September 30, December 31, March 31, 2018 2018 2019 271,813 $ 325,455 $ 388,501 $ (263,785) (288,152) (347,816) 16,570 2,833 453,984 $ (405,100) June 30, 2019 529,396 $ 628,134 $ 720,638 (480,061) (582,860) (650,081) 3,587 3,071 13,302 22,657 3,296 24,598 $ 40,136 $ 44,272 $ 51,955 $ 62,637 $ 67,931 $ 73,853 47,997 $ 54,992 $ 62,186 $ 69,403 $ 81,544 $ 102,153 $ 95,971 ▲ (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 separately evaluate the impact of non-cash straight-line lease cost on contribution margin?” above for additional detail about non-cash GAAP ▲straight-line lease cost. (e) Excludes other revenue not related to membership and service revenue. 78 › 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 straightlining 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. 79 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 Net Capex Per Workstation Added ▲ (in millions) $1,428 189K $6.0K 47% decrease 182% increase 173% increase (1) $3.1K $523 67K ▲ $4.4K Q2 ‘19 Q1 ‘17 Q1 ‘17 ▲ Q2 ‘19 ▲ 2015-2016 2017-2018 1H’19 “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 ▲ representative of our open locations. York, San Francisco and London, as well as two WeLive locations, as performance of these locations is not ▲ ▲▲ ▲▲ ▲ Our contribution margin including 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 eight ▲ 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. 86 • 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 have some time to determine how and when we will address the restrictions in these covenants under the indenture. 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 excluding non-cash GAAP straightline lease cost, 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. 88 Quarterly Results of Operations The following table sets forth certain unaudited financial and operating information for the quarterly periods presented. The quarterly information includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the information presented. This information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this prospectus. Three Months Ended (Amounts in thousands, except percentages and where noted) June 30, September 30, December 31, March 31, 2017 2017 2017 2018 Revenue: Membership and service revenue . . . . . . . . . . . . . . . . . . . . . $ 197,897 $ Other revenue . . . . . . . . . . . . . . . . . . 444 June 30, September 30, December 31, March 31, 2018 2018 2018 2019 June 30, 2019 234,337 $ 6,789 271,813 $ 325,455 $ 388,501 $ 11,503 16,708 33,107 453,984 $ 28,302 529,396 $ 628,134 $ 720,638 46,298 100,202 86,446 198,341 241,126 283,316 342,163 421,608 482,286 575,694 728,336 807,084 185,295 212,496 263,785 288,152 347,816 405,100 480,061 582,860 650,081 — — 1,677 15,161 26,863 31,631 33,133 36,163 45,026 25,034 23,740 29,525 41,150 49,102 59,816 73,232 62,811 83,751 77,078 97,530 109,559 103,318 129,281 112,798 150,999 142,335 169,047 19,518 26,853 46,128 58,679 115,412 118,510 184,672 141,844 227,883 45,979 38,005 52,665 42,166 318,773 51,494 78,194 62,043 77,063 75,375 90,696 77,590 111,533 98,506 218,537 124,855 171,373 131,069 Total expenses . . . . . . . . . . . . . . . 337,571 404,855 790,775 638,272 803,358 930,616 1,140,504 1,368,056 1,536,814 Loss from operations . . . . . . . . . . . . . . Interest and other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,230) (163,729) (507,459) (296,109) (381,750) (448,330) (564,810) (639,720) (729,730) 105,563 (3,949) (109,635) 19,433 (65,839) (48,888) (141,976) 378,152 91,763 Pre-tax loss . . . . . . . . . . . . . . . . . . . . . . Income taxes benefit (provision) . . . . . (33,667) — (167,678) — (617,094) 5,721 (276,676) 2,192 (447,589) (819) (497,218) (97) (706,786) (426) (261,568) (5,030) (637,967) (87) Net loss . . . . . . . . . . . . . . . . . . . . . . . . Net loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . (33,667) (167,678) (611,373) (274,484) (448,408) (497,315) (707,212) (266,598) (638,054) 8,608 7,840 33,052 43,022 51,740 104,346 117,519 86,447 128,529 Total revenue . . . . . . . . . . . . . . . . Expenses (1): Location operating expenses–cost of revenue (2) . . . . . . . . . . . . . . . . . Other operating expenses–cost of revenue (2) . . . . . . . . . . . . . . . . . . . Pre-opening location expenses (3) . . . . . . . . . . . . . . . . . . Sales and marketing expenses (4) . . Growth and new market development expenses (5) . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Net loss attributable to WeWork Companies Inc. . . . . . . . . . . . . . . . . $ (25,059) $ Key performance indicators: 154,000 Workstation capacity (in ones) (6) . . . . . Memberships (in ones) (7) . . . . . . . . . . . 128,000 Enterprise membership percentage (8) . . . . . . . . . . . . . . . . . . 22% Committed revenue backlog (in billions) (9) . . . . . . . . . . . . . . . . . . . . . . N/R Run-rate revenue (in billions) (10) . . . . . $ 0.8 $ Other financial information: Adjusted EBITDA including non-cash GAAP straight-line lease cost (11) . . . $ (93,077) $ Impact of non-cash GAAP straight-line lease cost on Adjusted EBITDA . . . . $ 59,093 $ (159,838) $ (578,321) $(231,462) $(396,668) $ (392,969) $ (589,693) $ (180,151) $ (509,525) 178,000 154,000 214,000 186,000 251,000 219,000 301,000 268,000 354,000 319,000 466,000 401,000 548,000 466,000 604,000 527,000 25% 28% 28% 30% 34% 38% 41% 40% N/R 1.5 $ N/R 1.8 $ N/R $ 2.0 $ (109,989) $ (174,442) $(209,936) $(257,351) $ (306,345) $ (397,965) $ (410,636) $ (524,051) 68,002 $ 90,604 $ 112,601 $ 125,361 $ 145,546 $ 159,334 $ 197,112 $ 226,826 N/R $ 1.1 $ 0.5 1.1 $ 2.6 $ 2.4 $ 3.5 $ 3.0 $ 4.0 3.3 N/R = Not reported Results of operations for the three months ended March 31, 2019 have been recast to reflect the impact of the adoption of ASC 842. (1) The following table sets forth stock-based compensation expense and expense related to stock-based payments for services rendered by consultants included in the below line items: Three Months Ended (Amounts in thousands) June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, 2017 2017 2017 2018 2018 2018 2018 2019 2019 Stock-based compensation expense: Location operating expenses . . . . . . . . . . $ 675 $ 810 $ 16,570 $ 2,833 $ 3,587 $ 3,071 $ 13,302 $ 22,657 $ 3,296 Other operating expenses . . . . . . . . . . . . — — 355 814 1,385 1,188 1,135 3,490 946 Sales and marketing expenses . . . . . . . . 378 454 3,040 1,670 1,756 1,542 1,375 9,821 3,111 115 › Three Months Ended June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, 2017 2017 2017 2018 2018 2018 2018 2019 2019 (Amounts in thousands) Growth and new market development expenses . . . 642 772 9,339 1,649 3,605 8,302 4,167 29,814 4,039 General and administrative expenses . . . . . . . . . . . . . . 4,465 4,165 248,128 5,002 5,544 3,909 3,564 79,407 31,754 6,201 $ 277,432 $ 11,968 $15,877 $ Total . . . . . . . . . . . . . . . . . . $ 6,160 $ 18,012 $ 23,543 $145,189 $43,146 Stock-based payments for services rendered by consultants: General and administrative expenses . . . . . . . . . . . . . . $ 1,870 $ Growth and new market development expenses . . . — Total . . . . . . . . . . . . . . . . . . $ 1,870 $ 2,309 $ 2,563 $ — — 2,309 $ 2,563 $ 2,971 $ 4,235 $ — 1,233 2,971 $ 5,468 $ (2) Exclusive of depreciation and amortization shown separately on the depreciation and amortization line. (3) Pre-opening location expenses includes non-cash GAAP straight-line lease cost as follows: 4,710 $ 5,175 $ 274 359 4,984 $ 5,534 $ 4,769 $ 4,761 433 514 5,202 $ 5,275 Three Months Ended (Amounts in thousands) June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, 2017 2017 2017 2018 2018 2018 2018 2019 2019 Non-cash GAAP straight-line lease cost . . . . . . . . . . . . . . $19,668 $ 24,503 $ 41,713 $ 56,881 $62,818 $ 74,242 $ 74,652 $ 91,070 $127,689 (4) Sales and marketing expenses includes total costs associated with other We Company offerings, Creator Awards and other strategic events of $4.8 million, $14.4 million, $6.7 million, $12.9 million, $22.1 million, $29.6 million, $19.9 million, $21.3 million and $23.5 million during the three months ended June 30, September 30 and December 31, 2017, the three months ended March 31, June 30, September 30 and December 31, 2018 and the three months ended March 31 and June 30, 2019, respectively. (5) Growth and new market development expenses includes total costs associated with growth related professional fees, travel costs, employee relocation costs, cost of goods sold in connection with delivery of Powered by We services, impairments and dead deal write-offs and non-cash GAAP straight-line lease costs of $4.7 million, $7.6 million, $18.0 million, $22.8 million, $45.2 million, $27.1 million, $81.3 million, $75.1 million and $96.2 million during the three months ended June 30, September 30 and December 31, 2017, the three months ended March 31, June 30, September 30 and December 31, 2018 and the three months ended March 31 and June 30, 2019, respectively. (6) “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. (7) “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. (8) “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. (9) “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 started reporting committed revenue backlog on a quarterly basis on March 31, 2019. (10) “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 “—Key Performance Indicators—Run-Rate Revenue” for additional information about this metric. The calculation of run-rate revenue for March 31, 2019 excludes $39.5 million of revenue recognized during the month ended March 31, 2019 relating to reimbursement for services performed in connection with Creator Award events, as the events primarily occurred in prior periods and the revenue is considered non-recurring. (11) While not a key financial measure, we supplement our GAAP results by evaluating adjusted EBITDA including non-cash GAAP straight-line lease ▲ income ▲ tax (benefit) provision, interest and cost. We define “adjusted EBITDA including non-cash GAAP straight-line lease cost” as net loss before other (income) expense, depreciation and amortization expense, stock-based compensation expense, expense related to stock-based payments for services rendered by consultants, income or expense relating to the changes in fair value of assets and liabilities remeasured to fair value on a recurring basis, expense related to costs associated with mergers, acquisitions, divestitures and capital raising activities, legal, tax and regulatory reserves or settlements, significant non-ordinary course asset impairment charges and, to the extent applicable, any impact of discontinued operations, restructuring charges, and other gains and losses on operating assets. We also separately present the impact of non-cash GAAP ▲ straight-line lease cost on an adjusted EBITDA. ▲ When used in conjunction with GAAP financial measures, we believe that adjusted EBITDA including non-cash GAAP straight-line lease cost is a ▲ historical ▲ performance by excluding non-cash items ▲ useful supplemental measure of operating performance because it facilitates comparisons of such as stock-based payments, fair market value adjustments, and impairment charges and other amounts not directly attributable to our primary operations, such as the impact of acquisitions, disposals and settlements. Similar to our discussion related to contribution margin, adjusted EBITDA is also significantly impacted by straight-lining of lease cost, and therefore we also separately present the impact on adjusted EBITDA of ▲ the non-cash GAAP straight-line lease cost. Adjusted EBITDA has limitations as an analytical tool, including those set forth with respect to contribution margin in “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Contribution Margin—What are the limitations of using our non-GAAP measures as supplemental measures?” Additionally, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements. 116 A reconciliation of net loss to adjusted EBITDA is set forth below: Three Months Ended (Amounts in thousands) June 30, September 30, December 31, March 31, 2017 2017 2017 2018 Net loss . . . . . . . . . . . . . . . . $ (33,667) $ (167,678) $ June 30, September 30, December 31, March 31, 2018 2018 2018 2019 (611,373) $(274,484) $(448,408) $ (497,315) $ June 30, 2019 (707,212) $(266,598) $(638,054) Income tax (benefit) provision . . . . . . . . . . . . — — (5,721) (2,192) 819 97 426 5,030 87 Interest and other (income) expense . . . . (105,563) 3,949 109,635 (19,433) 65,839 48,888 141,976 (378,152) (91,763) Depreciation and amortization . . . . . . . . . 38,005 42,166 51,494 62,043 75,375 77,590 98,506 124,855 131,069 Stock-based compensation expense . . . . . . . . . . . . 6,160 6,201 277,432 11,968 15,877 18,012 23,543 145,189 43,146 Stock-based payments for services rendered by consultants . . . . . . . 1,870 2,309 2,563 2,971 5,468 4,984 5,534 5,202 5,275 Change in fair value of contingent consideration liabilities . . . . . . . . . . . . — — — — 18,856 34,006 23,577 (52,327) 9,249 Legal, tax and regulatory reserves and settlements . . . . . . . . . — 2,851 540 2,548 253 814 — — 1,534 Expense related to mergers, acquisitions and divestitures . . . . . . 118 213 988 6,643 8,570 6,579 15,685 6,165 15,406 Adjusted EBITDA including non-cash GAAP straight-line lease cost . . . . . . . . . . . . $ (93,077) $ (109,989) $ (174,442) $(209,936) $(257,351) $ (306,345) $ (397,965) $(410,636) $(524,051) 68,002 $ 90,604 $ 112,601 $ 125,361 $ 145,546 $ 159,334 $ 197,112 $ 226,826 Impact of non-cash ▲ GAAP straight-line lease cost on Adjusted EBITDA . . . . . . . . . . . . $ 59,093 $ Liquidity and Capital Resources Our primary sources of liquidity are our cash and cash equivalents on hand and amounts available under the bank facilities. As of June 30, 2019, we maintained a cash and cash equivalents balance of $2.5 billion, which includes $535.8 million held by our consolidated variable interest entities (“VIEs”) that will be used first to settle obligations of the VIE and are also subject to the restrictions discussed below. In addition, as of June 30, 2019, our consolidated VIEs have $400 million in unfunded commitments from investors, and we are scheduled to receive $200 million during each of 2019 and 2020, which will provide additional liquidity for our consolidated VIEs. For the six months ended June 30, 2019, our primary source of cash was the draw downs in January 2019 and April 2019 under the 2018 warrant. Proceeds have been used to fund our growth, operations and capital expenditures for design and build-out of our spaces. In addition, the $1.5 billion available to draw in April 2020 under the 2019 warrant (as defined under “—Convertible Note and Warrant Agreements”) is expected to provide additional future liquidity. Our primary uses of cash relate to capital expenditures associated with the design and build-out of our spaces as well as lease costs, common area maintenance costs and real estate taxes, other location operating costs and general and administrative expenses. While also uses of cash, we view pre-opening location expenses, sales and marketing expenses, growth and new market development expenses and cash payments made for acquisitions as discretionary investments that will fuel our ability to continue to grow in the future. Although these amounts are important to our growth, we believe that they can be scaled back to the extent needed based on our future cash needs. 117 › September 11, 2019 Adam Neumann Chief Executive Officer The We Company 115 West 18th Street New York, NY 10011 Re: The We Company Amendment No. 1 to Registration Statement on Form S-1 Filed September 4, 2019 File No. 333-233259 Dear Mr. Neumann: We have reviewed your amended registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter by amending your registration statement and providing the requested information. If you do not believe our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response. After reviewing any amendment to your registration statement and the information you provide in response to these comments, we may have additional comments. Unless we note otherwise, our references to prior comments are to comments in our August 30, 2019 letter. Amendment No. 1 to Registration Statement on Form S-1 Prospectus Summary Our Economics, page 10 1. We note your references to the "strong unit economics" of your mature locations and your disclosure that the profitability profile of your business is a managed outcome driven by the maturity of your locations. In light of these assertions, we continue to believe that you should revise to make clear the number or percentage of your mature locations that are profitable and operate on a cash flow positive basis. Adam Neumann FirstName LastNameAdam Neumann The We Company Comapany 11, NameThe September 2019 We Company September Page 2 11, 2019 Page 2 FirstName LastName 2. We note your response to prior comment 4. Please revise to balance your disclosure in the summary of your strengths and attractive economics by highlighting your non-cancelable operating lease commitments. Recent Developments, page 13 3. We note your response to prior comment 6. Given the importance of the 2019 Credit Facility to your growth, the interdependence between the credit facility and this offering, and the restrictions you will be subject to as a result of the credit facility, please revise to briefly summarize the material terms of the credit facility and highlight that your ability to secure the credit facility is dependent upon this offering yielding gross proceeds of at least $3.0 billion. Management's Discussion and Analysis of Financial Condition and Results of Operations Contribution Margin, page 72 4. Please revise to clarify that Contribution Margin is only being presented in the aggregate, not on a location-by-location basis. 5. Please revise the name of your non-GAAP measure, Contribution Margin, to clarify that the measure is intended to reflect a measure of profitability at the location level. 6. Please revise the title “Contribution Margin including non-cash GAAP straight-line lease cost” to remove the qualifying language “including non-cash GAAP straight-line lease cost.” Contribution Margin and Contribution Margin Percentage, page 72 7. Please remove Contribution Margin Percentages, or disclose them along with a presentation, with equal or greater prominence, of the most directly comparable financial measures calculated and presented in accordance with GAAP. 8. Please revise the bar graph presentations to remove the impact of the straight-line lease cost on Contribution Margin. Key Factors Affecting the Comparability of Our Results Global Expansion, page 86 9. We note your response to prior comment 20 indicating that the Company is not aware of regional trends regarding free rent periods being less common in the regions into which the Company has expanded. This appears to contradict your disclosure on page 97, where you explain that lease costs increased in part due to your expansion into regions where a free rent period in leases is less customary. Please revise your disclosure to reflect any such trend or rectify the inconsistency. Adam Neumann FirstName LastNameAdam Neumann The We Company Comapany 11, NameThe September 2019 We Company September Page 3 11, 2019 Page 3 FirstName LastName Description of Capital Stock Provisions in Our Restated Certificate of Incorporation and Amended and Restated Bylaws Exclusive Forum, page 195 10. Revise to clearly state whether or not the provision applies to claims brought under the Securities Act. To the extent you believe it does, you should address whether there is any question as to whether a court would enforce the provision given that Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act. Refer to prior comment 24. Financial Statements Unaudited Pro Forma Balance Sheet Information, page F-76 11. We note your response to comment 31. In accordance with our telephone conversations between September 6 and September 11, 2019, please address each of the following: • Provide us an illustrative example that depicts the calculation of a distribution, including but not limited to the calculation of the “per unit distribution threshold,” the "preference amount,” and the “catch up base amount.” • In order for us to better understand the cash exchange amount, please provide us an illustrative example that depicts the calculation of a cash exchange (redemption amount). As part of that illustration please clarify for us how the “preference amount” and “catch up base amount” are computed and impact the cash exchange value. • Please consider revising your caption “Redeemable partnership interests in We Company Partnership” to highlight that this represents a non-controlling interest in the We Company Partnership. • Please expand your disclosure to indicate the percentage ownership in the We Company Partnership held by the profits interest holders. • Disclose the number of partnership interests that are authorized to participate in the profits interest scheme. Note 4. Leasing Arrangements, page F-88 12. We note your response to comment 33. Please tell us the amount of your lease incentive balance as of June 30, 2019 related to the broker commissions. Note 20. Stock Based Compensation, page F-116 13. We note your response to comment 34. We await the additional information and revised disclosures to be provided in response to this comment. Adam Neumann FirstName LastNameAdam Neumann The We Company Comapany 11, NameThe September 2019 We Company September Page 4 11, 2019 Page 4 FirstName LastName You may contact Joseph Kempf, Senior Staff Accountant, at (202) 551-3352 or Robert S. Littlepage, Accounting Branch Chief, at (202) 551-3361 if you have questions regarding comments on the financial statements and related matters. Please contact Joshua Shainess, Attorney-Adviser, at (202) 551-7951 or Celeste M. Murphy, Legal Branch Chief, at (202) 5513257 with any other questions. Sincerely, Division of Corporation Finance Office of Telecommunications