Table of Contents WEWORK COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2018 compared to total estimated contract cost. Contracts are generally segmented between types of services, such as design and construction, and accordingly, revenues related to each activity is recognized as those separate services are rendered. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Revenue recognized in excess of amounts billed is classified as accrued revenue on the accompanying balance sheets. Amounts billed to clients in excess of revenue recognized to date are classified as other current liabilities. The Company anticipates that substantially all incurred costs associated with contract work in progress as of December 31, 2018 will be billed and collected in 2019. Revenues recognized in conjunction with our Powered by We solutions are included within other revenue in the following table. Taxes collected from members and remitted to governmental authorities are presented on a net basis. The components of revenue are as follows: Year Ended December 31, (Amounts in thousands) 2016 2017 2018 Membership and service revenue $ 434,355 $ 866,898 $ 1,697,336 Other revenue 1,744 19,106 124,415 Total revenue $ 436,099 $ 886,004 $ 1,821,751 Location Operating Expenses—Location operating expenses are expensed as incurred and relate only to WeWork and WeLive locations that are open for member operations. The primary components of location operating expenses are rent expense, tenancy costs including the Company’s share of real estate and related taxes and common area maintenance charges, personnel and related expenses, stock-based compensation expense, building operational costs such as utilities, maintenance, and cleaning, insurance costs, office expenses such as telephone, internet, and printing costs, security expenses, credit card processing fees, food and other consumables, and other costs of operating our collaborative workspace locations. Employee compensation costs included in location operating expenses relate to the salaries, bonuses and benefits relating to the teams managing our community location on a daily basis, including member relations, new member sales and member retention, and facilities management, as well as costs for corporate functions that directly support the operations of our locations, such as personnel costs associated with the Company’s billings, collections, purchasing, and accounts payable functions. Sales incentive bonuses are also paid to employees as a means of compensating the community team members responsible for location level sales and member retention efforts. Other Operating Expenses—Other operating expenses are expensed as incurred and primarily relate to costs of operating and providing products and services by mature We Company offerings. For the year ended December 31, 2017 and 2018, this included the costs of operating and providing products and services by Meetup, Inc., Flatiron School, Inc. and Conductor, Inc. in the period subsequent to their acquisition as described in Note 6. Pre-opening Location Expenses—Pre-opening location expenses are expensed as incurred and consist of expenses incurred before a WeWork collaborative workspace location opens for member operations. The primary components of pre-opening location expenses are rent expense, the Company’s share of real estate and related taxes, common area maintenance charges, utilities, cleaning, personnel and related expenses, and other costs of opening our locations. Sales and Marketing—Sales and marketing expenses are expensed as incurred and consist primarily of advertising costs, personnel and related expenses and stock-based compensation expense related to our sales, marketing, branding, public affairs, and events teams, member referral fees, and costs associated with strategic marketing events. During the years ended December 31, 2016, 2017 and 2018, the Company recorded $14.8 million, $40.9 million and $91.2 million, respectively, of advertising expenses. F-18