Sonder(SOND) - 2024 Q4 - Annual Report

PART I Item 1. Business Sonder operates a tech-enabled hospitality model, leasing and managing design-focused properties, recently partnering with Marriott and optimizing its portfolio, while addressing going concern uncertainties - Sonder operates a tech-enabled hospitality model, leasing, designing, and managing apartments and hotels for modern travelers, available through direct and indirect channels[20][21][22] - A strategic licensing agreement with Marriott was announced in August 2024, with full integration completed in Q2 2025, making all Sonder properties bookable on Marriott's digital channels[21][31] Portfolio Snapshot (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Live Units | Over 9,900 | | Contracted Units | Over 800 | | Cities | 41 | | Countries | 9 | | Concentration (Top 5 Cities) | 37% of Live Units | | Concentration (Top 10 Cities) | 60% of Live Units | - The company implemented a portfolio optimization program in November 2023, resulting in agreements to exit or reduce rent for approximately 110 buildings (4,500 units), with about 3,200 units across 80 buildings exited as of December 31, 2024[30] - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern due to a history of net losses and negative operating cash flows, with mitigation plans including financing and cost optimization[63][64] Item 1A. Risk Factors The company faces significant risks including failure to achieve positive cash flow, forecast inaccuracies, macroeconomic impacts, and material weaknesses in internal controls, alongside going concern doubts - A primary risk is the potential failure to achieve positive and sustainable Adjusted Free Cash Flow (Adjusted FCF), as restructuring and portfolio optimization initiatives are not guaranteed to yield expected benefits[70] - The company's forecasts and projections are subject to significant uncertainty and may differ materially from actual results if underlying assumptions prove incorrect[72] - There is substantial doubt about the company's ability to continue as a going concern, potentially affecting its stock price, capital raising, and stakeholder relationships[69][216] - Material weaknesses in internal controls over financial reporting have been identified, potentially leading to material misstatements and impacting the ability to produce timely and accurate reports[69][140] - The company is not in compliance with Nasdaq's listing requirements due to delinquent SEC filings, which could result in the delisting of its common stock and warrants[69][224][225] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[245] Item 1C. Cybersecurity Sonder manages cybersecurity risks through a NIST-guided program with Board oversight and executive management, utilizing third-party consultants and insurance - The company's cybersecurity risk management and strategy is guided by the National Institute of Standards and Technology (NIST) framework, including risk assessments, network security, and employee training[247] - Board oversight for cybersecurity is administered by the Board and Audit Committee, with day-to-day management led by the VP, Technical Product Management and Senior Director, Information Technology Compliance and Information Security[251][253] Item 2. Properties Sonder's corporate staff primarily works remotely, with a main 170,000 sq ft warehouse in Fort Worth, Texas, deemed adequate for near-term needs - A substantial percentage of corporate staff works remotely, with leased office spaces being immaterial to operations[256] - The principal warehouse is a 170,000 sq. ft. third-party facility in Fort Worth, Texas, with a lease expiring on December 31, 2026[257] Item 3. Legal Proceedings The company is involved in various legal proceedings, including landlord disputes, a securities class action, and stockholder derivative lawsuits, which it intends to vigorously defend - The company is involved in litigation with the landlord of its 20 Broad Street, NY property, over alleged Legionella contamination and breach of lease, with the landlord seeking damages[617] - A putative securities class action lawsuit was filed in April 2024, alleging false and misleading statements regarding financial results and asset valuation between March 2023 and March 2024[618] - Several stockholder derivative lawsuits have been filed based on similar allegations as the class action, naming current and former officers and directors as defendants[620][621][622] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[259] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sonder's common stock and warrants trade on Nasdaq, with 135 record holders as of July 7, 2025, and no plans for future cash dividends or equity repurchases - Common stock (SOND) and Public Warrants (SONDW) are traded on the Nasdaq Global Select Market[261] - The company does not intend to declare or pay any cash dividends in the foreseeable future[262] Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Sonder's 2024 revenue increased to $621.3 million with a narrowed net loss, driven by RevPAR growth and portfolio optimization, while focusing on achieving positive Adjusted FCF and leveraging the Marriott partnership Key Financial Results (Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | $621.3M | $602.1M | | Net Loss | $(224.1)M | $(295.7)M | | Loss from Operations | $(182.6)M | $(278.0)M | | Adjusted FCF (Non-GAAP) | $(89.5)M | $(119.6)M | | Adjusted EBITDA (Non-GAAP) | $(105.5)M | $(169.4)M | Key Business Metrics (Year Ended Dec 31) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Live Units (End of Period) | 9,900 | 12,200 | (18.9)% | | RevPAR | $159 | $151 | +5.3% | | ADR | $196 | $184 | +6.5% | | Occupancy Rate | 80.9% | 82.0% | (1.1) p.p. | - The company's primary focus is its "Cash Flow Positive Plan," aiming for sustainable positive Adjusted FCF, with a $30.1 million improvement in 2024 Adjusted FCF compared to 2023[279] - The portfolio optimization program, initiated in November 2023, has led to agreements to exit or reduce rent at approximately 110 buildings (4,500 units), improving property-level profitability despite decreasing Live Units[280][285] - Subsequent to year-end, in April 2025, the company raised $17.98 million through preferred stock financing, amended debt agreements, and received the final $7.5 million from its Marriott agreement[273][274][277] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Sonder faces market risks including foreign currency exchange, interest rate, and inflation, which could impact operating costs, revenue, and consumer demand - The company faces foreign currency exchange risk from international revenue and expenses denominated in currencies other than the U.S. dollar[394][395] - Interest rate risk primarily affects the company's debt, with management not anticipating material risks from current changes, though rising rates could hinder property development financing[397][398] - Inflation risk could increase operating costs, construction expenses, and rent, while potentially dampening consumer demand for travel[399] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2024 and 2023, with the auditor highlighting going concern uncertainty and critical audit matters related to leases, asset impairment, and preferred stock valuation - The independent auditor's report from Deloitte & Touche LLP expresses a fair presentation opinion but highlights substantial doubt about the Company's ability to continue as a going concern[405][406] - Critical Audit Matters identified by the auditor include accounting for leases, impairment of long-lived assets, and the fair value of redeemable preferred stock, all involving significant estimates and judgments[410][414][421] Consolidated Balance Sheet Summary (As of Dec 31, 2024) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $1,137,177 | | Total Current Assets | $99,846 | | Operating Lease ROU Assets | $1,013,854 | | Total Liabilities | $1,573,065 | | Total Current Liabilities | $338,547 | | Non-current Operating Lease Liabilities | $1,009,169 | | Total Stockholders' Deficit | $(598,795) | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - None[658] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls were ineffective as of December 31, 2024, due to material weaknesses in lease accounting, asset impairment, preferred stock transactions, and COSO framework components, with remediation plans underway - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures and internal controls over financial reporting were not effective[659][662] - Material weaknesses were identified in processes for capturing and recording lease agreements, asset impairment evaluation, and reviewing preferred stock transactions[666][667][668] - Broader material weaknesses were identified related to the COSO framework, specifically in control activities, control environment, and information & communication components[669] - The company is implementing remediation plans, including hiring expertise, improving processes, and enhancing training, but these enhancements have not yet been fully remediated[670][671][673] Item 9B. Other Information An immaterial misstatement in Q3 2024 interim financials related to preferred stock valuation was corrected in the annual report, and the 2025 Annual Meeting of Stockholders is scheduled for November 6, 2025 - An immaterial correction was made to the Q3 2024 interim financial statements regarding Series A Preferred Stock valuation and a forward contract liability, now reflected in the annual financials[678][679] - The 2025 Annual Meeting of Stockholders is scheduled for November 6, 2025, with updated deadlines for stockholder proposals due to the date change[686] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[690] PART III Item 10. Directors, Executive Officers and Corporate Governance This section details the company's directors and executive officers as of July 7, 2025, including Board structure, committee compositions, and the adopted Code of Business Conduct and Ethics - As of July 7, 2025, Janice Sears serves as Interim Chief Executive Officer and Chairperson of the Board, and Michael Hughes serves as Chief Financial Officer[692] - The Board of Directors consists of seven members and is divided into three classes with staggered three-year terms[718][721] - The Board has four standing committees: Audit, Compensation, Investment, and Nominating, with detailed composition and primary oversight responsibilities[720][726][728][730] - A Code of Business Conduct and Ethics has been adopted, applying to all employees and directors, and is available on the company's investor relations website[717] Item 11. Executive Compensation Sonder's executive compensation program for 2024 and 2025 includes base salary, bonuses, and equity awards, with details on named executive officers, outstanding awards, and non-employee director compensation 2024 Summary Compensation Table | Name and Principal Position | Year | Salary ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Francis Davidson (Former CEO) | 2024 | 360,000 | — | 362,469 | | Dominique Bourgault (Former CFO) | 2024 | 477,865 | — | 477,865 | | Martin Picard (Chief Real Estate Officer) | 2024 | 378,708 | — | 381,791 | | Katherine E. Potter (Former CLO) | 2024 | 450,865 | — | 451,582 | - In March 2025, the executive compensation program was revised to include an annual cash bonus plan (STIP) and a revised long-term incentive plan (LTIP) granting a mix of performance stock units (PSUs) and restricted stock units (RSUs)[751][752][753] - Due to delayed financial filings, the company's Form S-8 registration statement was not effective, leading to a suspension of equity award grants and exercises in April 2024[748] - Non-employee director compensation includes annual cash retainers and equity awards, with the policy amended in December 2024 to adjust retainer amounts and equity grant values[777][779] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership of Sonder's voting securities as of July 7, 2025, including 5% stockholders and a summary of securities authorized under equity compensation plans - As of July 7, 2025, significant beneficial owners (over 5%) of voting securities include entities affiliated with Atreides Foundation Master Fund LP, Polar Asset Management Partners Inc., iNovia Growth Capital Inc., and BlackRock Inc.[794][795] - All current directors and executive officers as a group beneficially own approximately 11.9% of outstanding common stock and 3.7% of Series A Preferred Stock[794] Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be Issued Upon Exercise () | Weighted-Average Exercise Price ($) | Securities Remaining for Future Issuance () | | :--- | :--- | :--- | :--- | | Approved by Stockholders | 2,724,698 | 27.88 | 8,749,463 | | Not Approved by Stockholders | 173,323 | 12.19 | 326,677 | Item 13. Certain Relationships and Related Transactions, and Director Independence This section describes related party transactions since 2024, including preferred stock financings involving key affiliates and executives, and outlines the Audit Committee's review policy and director independence determinations - Key related party transactions include the August 2024 and April 2025 Preferred Stock financings, involving significant shareholders, former CEO Francis Davidson, and director Sanjay Banker[809][812] - The company has a written Related Person Transaction Policy requiring Audit Committee review and approval for transactions exceeding $120,000 where a related person has a material interest[814][816] - The Board has determined that all directors are independent under Nasdaq listing standards, except for Sanjay Banker and Francis Davidson[819] Item 14. Principal Accountant Fees and Services This section details fees paid to Deloitte & Touche LLP for 2024 and 2023, totaling approximately $3.88 million and $4.48 million respectively, all pre-approved by the Audit Committee Accountant Fees (in thousands) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $3,525 | $4,350 | | Audit-Related Fees | $348 | $131 | | Tax Fees | $0 | $0 | | All Other Fees | $4 | $2 | | Total | $3,877 | $4,483 | - The Audit Committee has a policy to pre-approve all audit and permissible non-audit services performed by the independent registered public accounting firm[826] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements and an extensive array of exhibits filed as part of the Annual Report on Form 10-K, including governance and material contracts - This item lists all financial statements and exhibits filed with the 10-K, including governance documents, material contracts, and certifications[830][831] Item 16. Form 10-K Summary The company has not provided a summary for this item - None[843]