Sonder Holdings Inc. (SOND) on Q1 2022 Results - Earnings Call Transcript

Operator: Thank you for standing by and welcome to Sonder Holdings First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s call may be recorded. I would now like to hand the call over to Ellie Ducommun, Director of Strategic Finance. Ellie Ducommun: Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us to discuss Sonder’s first quarter 2022 financial results. Joining me on the call today are; Francis Davidson, Co-Founder and CEO; and Sanjay Banker, President and CFO. Full details of our results and additional management commentary are available in our first quarter 2022 shareholder letter, which can be found on the Investor Relations section of our website at investors.sonder.com. Before we start, I’d like to remind you that the following discussion and the Q&A session at the end of this call contain forward-looking statements, including but not limited to, Sonder’s strategies, market opportunities and future financial and operating results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information about the factors that could cause our actual results to differ from those expressed or implied in any forward-looking statements can be found in Sonder’s periodic and other SEC filings. The forward-looking statements and discussion of risks in this conference call, including responses to your questions, are based on current expectations as of today. Sonder assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Also, the following discussion contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, please see our shareholder letter posted to our Investor Relations website. Now, I’ll turn the call over to Francis Davidson, Sonder’s Co-Founder and CEO. Francis Davidson: Thanks, Ellie. Good afternoon, everyone and thank you for joining us today. I’m very pleased to be reporting on our strong first quarter 2022 results. My remarks today will stand three core areas. First, I’ll provide a quick snapshot of our financial performance for the quarter. Second, I’ll share some of our recent business and operational highlights. And third, I’ll provide pertinent updates across each of our five main strategic priorities that we laid out in our yearend shareholder letter published in March which was just about 60 days ago. We’re pleased to report strong year-over-year performance in the first quarter, growing RevPAR by 52% and revenue by 155%. We ended Q1 with over 7700 live units and 39 – markets across 10 countries. We also grew our total portfolio by 48% to approximately 19,300 live and contracted units. In March commemorated our recent public listing by ringing the opening bell at NADSAQ in New York City and we helped corresponding team celebration across our markets globally. On the heels of this exciting milestone, we were named to Time Magazine’s 100 most influential company list, a complement – compilation of distinguished businesses making an extraordinary impact around the world. The Sonder underscores the work of all Sonder employees worldwide to deliver an incredible guests experience and meet the evolving needs of the modern traveler as we build the tech-enabled design for hospitality brand. In Q1 we continue to make progress on all five pillars underpinning our aggressive growth strategy and framework for long-term sustainable value creation. So our first lever is delivering an incredible guest experience. As a reflection of strong guest vicinity with Sonder our direct bookings remained over 40% in Q1. We also entered 2022 on with promising results from several pilot initiatives conducted at select properties in the second half of last year. These involve the testing new offerings for many aspects of the guest experience with a goal of employing technology and design to simplify and enhance the guest experience. By the end of Q1, properties that Randy’s pilot initiatives meaningfully outperformed our average customer – satisfaction for the quarter. As a result of this success, we’re extending these initiatives to several additional properties in our portfolio and continuing to layer in multiple other guest offerings to create an elevated and distinctive experience. Also worth highlighting, we recently announced our commitment to eliminate single-use plastic amenities in all units by end of this year. To the best of our knowledge, Sonder is the only hospitality brand that commit to an elimination of all single-use plastic amenities within a one year timeframe. Because of our rapid growth, we have the chance to make a really positive impact now that will compound over time. We’re seizing the opportunity to work with great brands that are developing sustainably packaged products exclusively for us. This way, we create a positive experience for our guests, but also aligns with our shared values. Additionally, it makes good business sense, driving long-term efficiencies and placing across our operations. Our second lever is securing high-quality properties at attractive economics. As I mentioned, we grew our total portfolio by 48% year-over-year to approximately 19,300 units, driven by the conversion of high-quality deals from our late-stage pipeline. We consider total portfolio growth to be our most important supply side metric as it provides the best forward-looking view of future live supply. Our current late-stage pipeline of prospective deals has reached an all-time high both in terms of quantity of units and strength of deal economics, giving us confidence in our ability to continue growing our portfolio at an accelerating pace. We’re also growing our real estate team, and improving our processes to get new real estate professionals grab this quickly as possible to support our portfolio growth. Finally, we’re continuously improving our real estate systems to better attract data and performance and proactively identify and resolve deal blockers. Our live units grew by 54% year-over-year to 7,700 units. We launched several new domestic and international properties in the first quarter and opened our first property in Orange County, California. Our portfolio of properties that went live after 2020 almost entirely consist of properties of our Sonder managers and operates the entire building instead of only a few floors or sections. While operating entire building delivers a more consistent guest experience and greater operational efficiencies the potential for opening delays impact larger number of units that once and can lead to variable live unit growth patterns quarter-over-quarter. These dynamics were implied during Q1, where despite meaningful year-over-year of live unit growth. Supply chain disruptions and labor shortages were challenged and certain property openings originally scheduled for early this year have now been delayed to subsequent quarters. We have dedicated teams across the world, focusing on several initiatives across inventory, technology and process mapping to reduce these delays and enable properties to be brought live faster at scale. Our third lever is our capacity to generate strong RevPARs. We believe there still a lot of runway on RevPAR growth and expect to continue to benefit greatly from overall travel market recovery. As a point of reference, US upper upscale hotels achieved RevPARs of 72% of their pre-pandemic Q1 2019 RevPARs and Q1 of 2022, 200 basis points lower than their Q4 of 2021 relative recovery. This was the first quarter since 2020, where the overall market recovery has contracted. We believe Sonder’s unique value proposition to guests has allowed us to rebound faster than the overall market, and we expect to continue to benefit from the overall market recovery, with US upper upscale hotel RevPAR projected to grow by 39% in 2022. In addition to capturing strong anticipated market recovery, we’re also focusing on several initiatives to grow our RevPAR. For example, in Q1 we began experimenting with a new pricing strategy, targeting higher occupancy in order to take advantage of the manual elasticity. We are marketing bookings further in advance, continuously improving our pricing strategy and developing additional sales and marketing capabilities to bolster demand. Early successes of this initiative were evident in Q1, as we increased occupancy rate by 700 basis points, year-over-year to 72%, and we’re still getting traction through the first month of Q2. We’re also continuing to implement a number of revenue focused technology initiatives, including offering guests and the ability to pay, to upgrade rooms prior to their stay, improving our monetization of early check-ins and check-outs and implementing dynamic length of stay pricing as longer stays, are margin accretive. Additionally, we continue to make substantial early progress on our new corporate travel offering, following its launch in the second half of 2021. We more than doubled our corporate traveler accounts from over 100 at the end of Q4 2021 to nearly 250 accounts at the end of Q1 of 2022. We’re seeing strong corporate transient growth, with fine travel management companies particularly with small and medium enterprise companies whose corporate travel has rebounded meaningfully. We’re also seeing growth in group bookings, particularly in entertainments, production and sports, and corporate housing bookings which is Sonder internship program in corporate reallocations. We’re still in the very early innings of our corporate travel offering, but have confidence that this is the huge opportunity and we’ll continue to gain traction in the coming quarters. Our fourth quarter, we achieved RevPAR growth of 92% year-over-year to $142 per night. This was a major milestone as we surpassed pre-pandemic RevPAR levels for the first time since the onset of the pandemic. Even more exciting is the runway still ahead of us on RevPAR growth given the broader market still lags pre-pandemic levels. Our fourth lever is to continue driving operating efficiencies. We continue to implement meaningful enhancement to our technology that allow us to operate more efficiently and we’re seeing the impact of these efforts play out. For example, we’ve rolled out a new taxonomy in our core hospitality operations application by creating a flexible yet robust data structure that provides the right information needed to self-guest request, we were able to meaningfully reduce medium task completion times. We also introduced smart clean shuffling which allows us to optimize housekeeping personnel scheduling and enables us to fulfill early check-in, late check-out requests while still welcoming guests with a spotless room. The ability to deliver flexible check-in and check-out in an automated fashion adds real value to our guest experience, creating an ability to drive incremental RevPAR and improved CSAT. On the guest-facing side, we expanded our rollout of mobile keys for iOS devices across the significant fresh fortune of our global portfolio and this will further optimize the contactless check-in process. We’re exciting about the additional initiatives underway and confident in our ability to continue introducing technological and operational improvements to drive incremental efficiencies that further enhance our path to profitability. Our fifth and final lever is our people and culture. Extending hospitality to all those among our leadership principals and we nurture a culture of inclusivity at all levels of the organization. This past quarter, we invested and assuring our people embody this by delivering dedicated coaching in this area. We kicked off a two-part program of special training to all people managers, dedicated to conscious inclusion awareness and education to strengthen relationships and cooperation. Also on the people front, our quarterly engagement survey from Q1 showed exceptionally strong and record engagement among our employees which responded highlighting autonomy and ability that really express their opinions being key drivers of engagement. And to finish, I’d like to reiterate that we remain laser-focused on the execution of our strategy, powered by the levers I’ve outlined today. We believe that pulling these levers consistently will deliver strong free cash flow and value creation over the long-term. I’d like to thank our employees across the world for their tireless work and express my gratitude to our partners and investors for their ongoing support. With that, I will turn over the call to our President and CFO, Sanjay Banker, to provide you with further details on our recent financial performance and an update on our growth outlook. Sanjay? Sanjay Banker: Thank you, Francis. And good afternoon everyone. Our Q1 results are detailed in the shareholder letter we issued after the market close today and supplemental information will be available in our first quarter Form 10-Q that will be filed later this week. This afternoon, I will provide a brief overview of our first quarter financial results and our second quarter outlook, before we open the call to question. Unless, otherwise specified, all of the Q1 growth tickers cited in my remarks are year-over-year comparison. In the first quarter, we delivered $80 million of revenue, representing a 155% increase, compared to Q1 2021. Our Q1 revenue was fueled by 52% RevPAR growth. Our new pricing strategy targeting higher occupancy and the expansion of our live portfolio which grew 54%. Our key performance metrics improved year-over-year, including live units, bookable nights, occupied nights and RevPAR. We ended the quarter with over 7,700 live units, representing 54% growth. Through expansion in our existing market with several new property openings. At quarter end, we had approximately 19,300 units in our total portfolio, representing 48% growth, driven by the conversion of high-quality deals from our late-stage pipeline. In Q1, we had approximately 689,000 bookable nights, representing an increase of 68%, driven by our live unit growth. Additionally, late Q4 2021 property openings led to an increase in bookable nights in Q1 2022. Our live unit growth, coupled with our strategic focus on increasing occupancy, also drove significant growth in our occupied nights, which increased 84%. As a result, our occupancy rate increased 700 basis points to 73%. Our RevPAR grew 52% to $117, and our ADR grew 39% to $160. Though we did see the impact of travel restrictions and hesitancy, due to the emergent of Omicron variant, compressing our Q1 RevPAR in excess of our typical seasonality patterns. This Omicron-driven pressure on revenue also impacted our profitability metrics in Q1. However, we continue to demonstrate year-over-year progress in profitability margins. Our property level loss margin improved by 3,300 basis points. And our adjusted EBITDA loss margin improved by 6,400 basis points in the Q1 2022. We’re pleased to see COVID-related restrictions and hesitancy begin to abate toward the end of Q1. We’re highly encouraged by the recent momentum in forward booking trends at the start of Q2, which indicate a snapback of travel demand in store for summer 2022. Combined with our continued focus on improving operational efficiencies, this give us confidence in our ability to continue progressing on our path to profitability. As a reminder, our presentation of adjusted EBITDA takes the upfront cash benefits we receive in the form of initial rent abatement periods and owner-funded CapEx allowances, a straight line then over the life of a lease in accordance with GAAP. These benefits can be substantial and result in cash landlord payments meaningfully lower than reported GAAP rents during periods of live unit growth. Therefore, as a management team, when calculating our internal measure of adjusted EBITDA we consider these benefits in the period where we actually receive them, as we believe it presents a better approximation of cash from operations. These factors are captured by adding back our GAAP rent to landlord payments adjustment and FF&E allowance realized adjustment, and these led to a positive combined benefit of $17 million in Q1 2022. Total costs and expenses increased by 72% to $176 million in Q1, inclusive of $7 million of stock-based compensation expense in the quarter. Total costs and expenses were driven by additional investments in research and development, sales and marketing as we build out our corporate travel capabilities, G&A expenses related to our ongoing needs as a public company and operations costs related to the rapid expansion of our live units. Our global headcount increased to over 1,600, to support our rapid live unit growth and prepare for our expected growth in 2022 and beyond. As of March 31st, 2022, we had $407 million in cash, including less than $1 million in restricted cash. Although Q1 featured its own unique set of challenges given the effects of Omicron in addition to our typical first quarter seasonality. We are pleased with our execution in navigating these dynamics to start the year. Despite these temporary impacts, our large market opportunity and long runway for future growth remain highly compelling. Given the more recent uptick we’ve seen in forward booking trends as we’ve entered Q2, we continue to believe the time is right to responsibly pursue our growth strategy. We remain highly confident this will create significant long-term value for all Sonder stakeholders. Turning to our outlook. In the second quarter of 2022, we anticipate revenue growth of more 140% year-over-year, versus $47 million in the second quarter of 2021, primarily due to our expectations around robust travel demand recovery into summer 2022 and continued growth in bookable nights and live units. We expect adjusted EBITDA losses in Q2 better than $80 million, as we continue to rapidly expand our live units in Q2 and beyond and scale our personnel to support our expected portfolio growth this year. The rebound in travel demand combined with our visibility on live unit and bookable night growth, gives us the confidence to reaffirm the full year 2022 outlook we provided in March. We continue to expect to grow full year revenue by between 100% to 110% as compared to full year 2021. We also continue to expect full year 2022 adjusted EBITDA losses to be lower than 2021 on a percentage of revenue basis and higher on a dollar basis. I’ll close our prepared remarks today by reiterating that our growth pipeline remains robust and we continue to benefit from strong relationships with our existing and perspective real estate partners who believe Sonder best represent the future of hospitality. We remain committed to and relentlessly focused on driving sustainable, long-term value for our stakeholders. We’re now happy to take your questions. Operator? Operator: Thank you. Our first question comes from the line of Jed Kelly of Oppenheimer. Your live is open. Jed Kelly: Hey, great. Thanks for taking my question and congrats on a good quarter in a difficult environment. Just two if I could – two to start off with. So can you kind of give us an update on you know the amount of live supply we should expect to go or the amount of supply we should expect to go live in the second quarter and then, are those you know contracted units you know how many – you know what’s the amount of supply we should expect you to have by the end of the year? And then my second question is on technology. Can you provide a status update of the tech rollout you highlighted in your last earnings and give us a glimpse into heading new launches that you have in the coming quarters? Thank you. Sanjay Banker: Thank you, Jed for the question. I’ll start with the first part of your question around supply growth and then I’ll pass it on to Francis to talk about technology. So, with respect to overall annual supply growth as you point out we have a strong signed unit pipeline that represents our backlog that’ll go live. We’re not declaring guidance around 2022, end of year live supply but as we said before and as we reiterated today, we’re anticipating 2022 growth at the 100% to 110%, which is a balanced diet, if you will, of RevPAR growth substantial RevPAR growth of course given the recovery and rebound in travel especially going into the summer as well as live unit growth. And so, we continue to see those contracted units turn into live units of course we don’t control construction ourselves, and therefore, a part of our live unit growth is largely dependent on the speed at which the developers can turn that sign supply get it through the construction or renovation cycle and deliver the keys to us. And so that leads naturally to some lumpiness or variability in particular as we do larger and bigger deals and fuller buildings that creates quarterly or a sequential lumpiness and when those signed units turn into live units and which is why we don’t declare quarterly guidance around supply, but that’s obviously a factor that feeds into our revenue guidance and that revenue guidance for Q2 incredibly robust given the forward booking volumes that we see 140% year-on-year growth for Q2 and 100% to 110% year-on-year growth for 2022. Francis Davidson: And Jed, let me step in for the question on some of the progress on our technology and the things that we’ve rolled out. So, just as to step backward, the ambition and stability, the operating system for hospitality so that’s the suite of software that span a lot of jobs within the company from supply signing to supply chain to opening properties to operating day-to-day generating revenues both on Sonder.com and through our distribution channels. And so it’s really wide range of technology. Let me maybe just focus on a couple of areas. Guest experience, this is one of the really important areas of differentiation for our business and the core theme there is self-service, the idea that we want to provide guests the capacity to have access to information, send request, check themselves then and do that all seamlessly through the mobile app which are vast majority of guests use everyday when they stay with us. So self-service is a big theme, just constantly features at the mobile app to make things faster and easier for our guests. The second piece is messaging, so a really important update to our app for about 20% of our users that we find on rolling that out, all users shortly, is a dedicated messaging tab. So now at the tap of a button you can start messaging with a Sonder representative at – who reply instantaneously to the request and information that you might be seeking. And what’s really interesting about that messaging feature is that, we don’t have like kind of a session-based messaging where you kind of are connected to an agent and then after the conversation is done that conversation disappears forever. This is kind of the standard in hospitality for those who have a messaging feature. Our messaging is much more kind of continuous. You can just scroll your conversation that you’ve had in the past and you can set your phone aside for couple hours and take it back and take a look at the messaging and see what our team has answered to your questions. So it’s just really something that feels more like texting a friend in a sense, but obviously through the Sonder mobile app. And then – another thing is the rollout of our mobile piece. So on iOS and across the majority of our properties is possible now to just you know with a couple of taps on the app setup your phone should become your key. Of course Sonder is always been a contactless check-in company, and we’ve had – we still – it’s still possible to enter by entering digits on the keypad but now also we can even skip that and then just use the phone directly to access buildings and unit. So lot of exciting stuff on the guest experience front. And then the second piece I want to highlight is operations. I’d mentioned at the top of the call, the robotic tap textonomy. And so this is the really important categorization of 1,500 different kind of work streams that occur in the day to day operation in the hospitality business. We very carefully figured out the hierarchy and the structure of all these interactions so that when just say hey, I need this, we can easily collect the right information and map that and dispatch that work stream to the right person within Sonder so that we can efficiently and rapidly resolve those guests’ requests. So we see a measurement of speed at which we can close those cases and of course just provides a really rich dataset for us so that we can uphold our service promise and our service SLAs. And then in the second example I wanted to provide is on smart clean shuffling. So there’s a lot of initiatives that we rolled out around improving our capacity to automate upgrades, the monetization of early check-ins and like check-outs like we described. There’s another piece of technology which is our, what we call our shuffling algorithm so that we can compact bookings to a calendar in a most efficient way possible so that we can achieve really high occupancy rates. All of these pieces and technology have implications when it comes to our housekeeping schedules. And before we had a scheduler that had to be manually updated and now you know this process has been automated so that we can optimize our housekeeping cost, but in a way that that really blends in nicely with the other pieces of technology that’s kind of dynamically adjust which room a guest is going to be allocated to in an automated fashion. So those are just the few examples, but there’s a lot more you know the landscape is really broad and the ambition that we have is a large one, but really good progress that we’re happy to speak about today. Hopefully that provides some color. Jed Kelly: Yeah, that was great. And then, Sanjay, just a follow-up on the guidance you know 140% revenue growth in 2Q sort of implies a decent acceleration in 3Q, despite a similar comp, can you just talk about is that just conservatism or can you talk about some of like how you’re thinking about the back half, because it does provides or I don’t know, still good growth but it does provide somewhat of a step down in the back half? Thanks. Sanjay Banker: Yeah, thank you. I’d say, it’s a combination of conservatism it’s premature to have a more robust a forward-leading call for the back half and we have a great amount of visibility into Q2, given forward-booking dynamics and so we’re comfortable making the call we are for Q2 given the early booking and the robust anticipated summer travel season a lot of which is already on the books, that allows us to lean into our 2Q guide for which we’re very excited. We’re obviously given any kind for the back half of the year too, but we’ll be able to have more visibility that as we close it to the back half of the year. Jed Kelly: Thank you. Operator: Sanjay Banker: Thank you. Operator: Thank you. Our next question comes from Ron Josey of Citi. Your line is open. Ron Josey: Great, thanks for taking the question. Maybe a quick follow-up just on Jed’s question, live units. You know, Sanjay or Francis can you talk about if the pressures you say or the industry saw on live unit growth in 1Q, they abated somewhat here in March, April, May. And then, you know Francis it’s been a lot of time in the letter and on the call they’re talking about the past positive free cash flow. And I think there you know the recovery is far from complete, I think Sanjay just talked about some of the trend there. But any additional insights on forward bookings, on pricing trend, I know RevPAR was talked about there as well would be helpful. Thank you. Sanjay Banker: Thank you, Ron. I’ll start with the first of the question, and Francis can take the second. So with respect to live unit growth, I’d say Q1 definitely had the ongoing supply chain issues that we’ve talked about in the prior earnings call around the degree to which developers themselves are reliant and dependent on building material supply chain, labor and the like, with respect to being able to deliver keys to us. And so, we did see that continue. Yeah I’ll also add though an important driver was, the fact that we had a large Q4 live unit growth and that actually to some extent pull forward something that could have opened in Q1 that we accelerated and stepped down we got, and got them open before the end of 2021. And so if you look at our occupied nights growth sequentially in Q1 versus Q4, we saw 20% sequential growth in occupied nights and that’s primarily a phenomenon of the fact that we had a large growth in live unit, late in Q4 that really created our ability to have strong sequential occupied nights growth and so we still felt really good about our capacity growth in Q1 even though that was around largely driven by a pull forward of live unit growth that payment to the latter part of Q4 of 2021. We do remain optimistic about supply growth going into the year on live – sorry on contracted unit portfolio still gives us a great ability that while we can’t control the exact month by which those properties go live, we do have strong visibility into a large number of properties going live here over the next three quarters a year, which underpins our forecast for full year revenue guidance. Ron Josey: That’s super helpful. Any insights on the recovery just I know you’d mentioned some part on 3Q, but just relative to the path to positive free cash flow? Thank you. Francis Davidson: Yeah, absolutely yeah let me step in here. So, Q1 was the first RevPAR recovery reversion since 2020, across urban markets so we’d seen continuous improvements versus 2019 levels or every quarter leading up to Q1 of 2022. But as we just discussed are feeling really optimistic about the forward booking trends and the snapback of travel. We’re really, really, really excited about you know folks that for couple of years have been cooped up and hesitant to travel whether those are leisure travelers, whether those are business travelers and particularly in urban markets. But it really seems like the sentiment is shifted around the desire to go back on the road and explore and stay in those urban markets and that’s reflected in the data that we’ve seen for forward bookings over the last month or so. But you mentioned there’s a lot of headroom for growth in that metric, our comps are expected to or rather the industry is expected to grow to RevPAR 39% year-over-year in 2022 this is per Smith Travel Research and it’s a very, very optimistic there about what the picture looks like. You know I’d like to mention on I would say how that relates to free cash flow. And let me just reiterate that free cash flow is in absolute top priority for the business and we’re not just talking about kind of trivial long-term free cash flow over the next you know decade plus, but this is something that we’re actively working on in the very much here and now. And we want to show some progress on that I mentioned you know a lot of it comes from the improvements in market conditions that we’re expecting to see over the next year or two. You know but that’s not it, there’s a lot of other initiatives that we pursued in order to improve the RevPAR, week day RevPAR’s corporate demand where we’ve announced right, are increasing in the count from 100 to 250 that really helps a week day RevPARs and that’s kind of all go get revenue for us that wasn’t there before, we launched our corporate travel program in the middle of 2021. So a series of initiatives there on operational efficiency which is really technology and passing into economies of scale. So that variable the cash contribution margin as we’ve described there which is our operating cash flow minus the kind of overhead other operating expenses which was 10% in Q1 of 2022, kind of the baseline but with that really weak market recovery scenario and as the market recovers that number is expected to meaningfully improve. And so with that margin, as we apply more and more live units, that generates the you know greater and greater quantity of cash and of course we have to ensure that those units are coming under the really attractive terms and the shift that we did in 2020 towards capital light deals, meaning that property owners are funding the CapEx the dollars will go into making a property or Sonder property that really, really helps shorten the payback terms when we add live units and makes that growth free cash flow accretive extremely rapidly at the company level. I mean and the third, the third piece in turn continued leverage of our other OpEx and the net CapEx. That’s just you know across 2021 we’ve managed to growth those line items substantially more slowly than we did revenue and so we’re very – we have – we apply a lot of scrutiny towards these numbers to ensure that we continue to benefit from really attractive overhead leverage. So these three things really coming together for us to allow us to march on a positive – the free cash flow positively and rapidly as possible. Ron Josey: Thank you, Francis. Thank you, Sanjay. Operator: Thank you. Our next question comes from Stephen Grambling of Goldman Sachs. Please go ahead. Stephen Grambling: Hey, thanks for taking the questions. You know in our investor conversations it seems like there’s just a lot of more fear about recession around the corner and I know you had some comments in the deck on this. But you know in a sense that you’re in the process of recovery but how do you think about sensitizing the model to a recession scenario, and also ensuring that you have the right liquidity in the event of such a scenario on a prolonged cash burn? Sanjay Banker: Thanks a lot Stephen for the question, I totally understand it. I appreciate you sharing that investor feedback, it’s not – there’s surprised us that is on people’s mind obviously in the headline. Needless to say, we think a lot about, while we have no crystal ball and we can’t make predictions about the macro environment. We do think a lot about this. And frankly it’s been in our DNA since long before COVID or before the pandemic those that knew us back in 2019 we’d – we were running every recession scenario through our models in our forecast you know we’ve even had a model, where you could dropdown and select which recession scenario you want to run, 2001, 2008 or and one that do our forecast depending on when you thought it would start. Obviously the pandemic was a deeper and more prolonged impact on travel than on any of those other recession in the fact versus those recessions combined. And so we feel like we’ve already been through an event called the pandemic that was in orders of magnitude greater than any recession on record. And we think that we learned a lot, we learned how to keep occupancy elevated even when our travel competitors or traveling competitors were not able to. We learned how to be incredibly disciplined on the cost side. We learned how to navigate our – our competitors in a budget set. And so that – those lessons I think remain with us and we’ll apply to how we might think about future recessions. That said, it’s really important and remember that, you know our forward booking outlook for the summer is incredibly robust and whether you’re looking sequentially or year or year, even if the macro is somewhat damped the rate of recovery, the rate of recovery by all accounts and everything that we see today remains incredibly strong and we’re incredibly thinking about our macro being a big tailwind to our performance in the foreseeable future regardless of what happens in the macro. Stephen Grambling: That’s helpful. Maybe one related follow-up. Can you remind us, is there any covenants or a liquidity requirements with your debt? Sanjay Banker: So I didn’t answer the liquidity part of your question. So we’ve got – we closed Q1 with over $400 million of cash in the bank and so we feel like we have a more stable liquidity and no concerns around covenants of the like with respect to our liquidity outlook and so we feel really about that having the cash on the sheet to fund the plan be able to invest in the business and drive upon really attractive growth. Stephen Grambling: Awesome. Thanks, I’ll jump back in the queue. Sanjay Banker: Thank you, Stephen. Operator: Thank you. Our next question comes from Andrew Boone of JMP Securities. Please go ahead. Unidentified Participant: Hi, guys. Matt on for Andrew. Just two quick from me. Can you just help breakdown the ADR improvement year-over-year in the quarter? How much is that was market share and then how much of that was your revenue management? And then secondly just on the high occupancy strategy, you know can you just talk about what allows you to make this decision and you know how really is the model going forward and how we should think about that? Thanks. Sanjay Banker: Yeah, so I’ll take the first part of that question around ADRs. So as Francis mentioned earlier, Smith Travel Research projected 39% year-on-year RevPAR growth for 2022. We think that our – when we look at our comps, urban upper upscale hotels in north America Q1 of 2022 was about 72% of Q1 ’19. So significant headroom, significant outlook for additional market growth. That said, how RevPAR growth was even more robust than anything that you would look at when you look at the market metrics, right 52% year-on-year growth in Q1. And so, the punch line is, we think that we outperformed market and that it was Sonder-driven of course Q1 still have a significant Omicron impact and Q1 is a seasonally slower quarter, right and typical years say 2019 before the pandemic, Q1 was about 15% discount to the full year 2019 RevPARs and so our overall Q2, Q3 those are our strongest quarters. And so we’re really excited about getting into the meet of the year here both because of seasonality as well as the abating of pandemic restrictions meaning a big snapback in travel and keep in mind that, all of that lift, if you will, in RevPARs dropped through to the bottom line. And so, the margin impacts are also exciting as well on top, above and beyond just the RevPAR in parts. Francis Davidson: Yeah, let me jump in here for the occupancy lift and our strategy to pursue a higher occupancy rate. So we have launched this in mid Q1, ’22 to drive incremental revenue and free cash flow. So we’re very careful that in sharing that we don’t just sell rooms for their own sake, but that we’re carefully taking to account the fact that higher occupancy means more cost to serve and ensuring that the RevPAR we generated in excess of the incremental cost required to serve this incremental occupancy. So, there is – the math that led us to that decision is simply the fact that we’ve ran some sophisticated demand elasticity study to try that and emphasize what are some areas in which we might be able to improve RevPAR by fluctuating price and improving our occupancy rate and we saw that quite a lot of value could be generated that way. Another value driver of the strategy that we can extend the booking window and so it start generating bookings for future and advance and which had cash flow benefits and allows us to you know improve our pricing strategy with better forward-looking visibility and to the bank patterns. And incentivizing longer stays as well so with a higher occupancy rate strategy, our pricing is a little bit attractive for stays that are longer. This is something of an innovation at Sonder, our capacitive price not just based on a night, but having a continuous discount curve that applies based on length of stay and the discount curve that you know is a function of what we expect. Demand should look like for these length of stay duration than we expect our cost structure to be like for those length of stay duration. So it’s a really interesting optimization that I consider to be a strength for Sonder. So very excited about our initial results right in Q1, 73% which was 700 basis points improvement year-over-year and very strong traction at the Q2. Unidentified Participant: Great, thank you. Operator: Thank you. At this time, I’d like to turn the call back over to Francis Davidson for closing remarks. Sir? Francis Davidson: Yeah. Well, thanks so much, everyone for dialing in and listening to our call today. We’ve got some really interesting important things that we’ve outlined in our shareholder letter you know I’d start with the CEO letter at first couple of pages that kind of breaks down some of the themes that we discussed today in further detail. So really encourage you to go and take a look and thank you so much for your engagement. We look forward to speaking to some of you in future investor conferences. Thank you so much. Operator: And this concludes today’s conference call. Thank you for participating. You may now disconnect.
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Sonder Holdings Inc. Partners with Marriott International to Enhance Hospitality Offerings

  • Sonder Holdings Inc. (NASDAQ: SOND) announces a strategic licensing agreement with Marriott International, Inc. (NASDAQ: MAR), aiming to integrate over 9,000 Sonder units into the Marriott portfolio by the end of 2024.
  • The partnership is expected to leverage Marriott's extensive network, boosting Sonder's market appeal and operational efficiencies.
  • Sonder secures a significant liquidity boost of approximately $146 million, including around $43 million in convertible preferred equity investment, to support growth initiatives and improve operational efficiencies.

Sonder Holdings Inc. (NASDAQ: SOND) operates in the competitive hospitality sector, offering a modern twist on traditional accommodations by providing premium, design-forward apartment-style lodgings. This innovative approach caters to a broad spectrum of travelers, from leisure tourists to digital nomads and professionals seeking temporary or longer-term stays. With a significant presence across North America, Europe, and the Middle East, Sonder has established itself as a notable player in the industry, competing with both traditional hotels and newer, tech-driven hospitality companies.

Despite the lack of change in the consensus price target for Sonder, indicating a potential stagnation in analyst coverage or updates, the company has not remained static. On August 19, 2024, Sonder announced a groundbreaking strategic licensing agreement with Marriott International, Inc. (NASDAQ: MAR), a titan in the global hospitality industry. This partnership is expected to significantly enhance Sonder's business model by integrating more than 9,000 of its units into the Marriott portfolio by the end of 2024, with an additional 1,500 contracted units to follow. This move not only expands Sonder's reach but also aligns it with a globally recognized brand, potentially boosting its market appeal and operational efficiencies.

The collaboration with Marriott International is a strategic leap for Sonder, aiming to leverage Marriott's extensive network and brand strength to tap into new customer segments and revenue streams. By bringing a substantial portion of its inventory under the Marriott umbrella, Sonder is poised to benefit from Marriott's robust booking system, loyalty programs, and marketing prowess. This partnership could significantly impact Sonder's visibility and financial performance, offering a promising avenue for growth and market penetration.

In addition to the strategic partnership, Sonder has bolstered its financial position through a substantial liquidity boost of approximately $146 million. This includes around $43 million in convertible preferred equity investment, aimed at strengthening its balance sheet. This financial reinforcement is crucial for Sonder as it navigates the competitive and capital-intensive hospitality industry, providing it with the resources to invest in growth initiatives, improve operational efficiencies, and enhance guest experiences.

The strategic alliance with Marriott International marks a pivotal moment for Sonder, potentially transforming its operational and financial trajectory. This partnership, coupled with the recent financial injection, positions Sonder to capitalize on new opportunities and navigate the challenges of the hospitality sector more effectively. Investors and market watchers should closely monitor Sonder's integration into the Marriott portfolio and the subsequent impacts on its business operations and financial health.

Sonder Holdings Inc. Faces Legal Challenges Ahead of Earnings Report

  • Sonder Holdings Inc. is set to release its quarterly earnings report on June 5, 2024, with analysts expecting an EPS of -3.08 and projected revenue of $170 million.
  • The company is embroiled in a class action lawsuit for allegedly providing false and misleading statements regarding its financial health and business operations.
  • Financial ratios present a mixed picture, with a price-to-sales ratio (TTM) of 0.069 and an enterprise value-to-sales ratio (TTM) of 2.88, indicating potential undervaluation but also raising concerns about cash flow and short-term obligations.

NASDAQ:SOND, Sonder Holdings Inc., is gearing up for its quarterly earnings report, set to be released on Wednesday, June 5, 2024, before the market opens. Analysts are eyeing an earnings per share (EPS) estimate of -3.08, with projected revenue for the quarter around $170 million. This anticipation comes amidst a backdrop of legal challenges for Sonder, as the company faces allegations of providing materially false and misleading statements regarding its business operations and financial health.

Sonder Holdings Inc. finds itself embroiled in a class action lawsuit, with accusations that it failed to fully disclose issues related to its internal controls. Specifically, the lawsuit alleges significant errors in the accounting for the valuation and impairment of operating lease right of use assets in its financial statements for the 2022 Annual Report and the interim periods ending March 31, June 30, and September 30, 2023. As a result, Sonder is expected to restate its previously issued financial statements for these periods, casting a shadow over its upcoming earnings report.

The legal challenges do not stop there for Sonder. The Schall Law Firm, a national shareholder rights litigation firm, has issued reminders to investors about the class action lawsuit for alleged violations of the Securities Exchange Act of 1934. This lawsuit targets investors who acquired Sonder's securities between March 16, 2023, and March 15, 2024, urging those who have incurred losses to come forward before the June 10, 2024, deadline. These legal proceedings highlight significant concerns regarding Sonder's transparency and financial reporting practices.

Financially, Sonder's metrics present a mixed picture. With a price-to-sales ratio (TTM) of approximately 0.069, Sonder's shares appear to be valued relatively low compared to its sales, potentially indicating an undervaluation by the market. However, the enterprise value to sales ratio (TTM) of 2.88 suggests the market values the company at nearly three times its sales revenue. On the flip side, the negative enterprise value to operating cash flow ratio (TTM) of -16.70 and a current ratio (TTM) of 0.71 raise concerns about Sonder's ability to generate sufficient cash flow from its operations and cover its short-term obligations with its short-term assets, respectively.

As Sonder Holdings Inc. (NASDAQ:SOND) approaches its quarterly earnings report, investors and analysts alike will be keenly watching how these financial and legal challenges play out. The combination of anticipated earnings, revenue projections, and the backdrop of legal issues provides a complex scenario for Sonder, reflecting both the potential financial opportunities and the risks associated with its current situation.