Sonder(SOND) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes, along with management's discussion and analysis of financial condition, results of operations, market risk, and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, cash flows, and stockholders' deficit, along with detailed notes explaining the company's accounting policies, financial instruments, debt, equity, leases, and recent events Condensed Consolidated Balance Sheets (unaudited) This table presents the company's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' deficit as of March 31, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $23,329 | $20,786 | | Restricted cash | $43,191 | $51,268 | | Total current assets | $88,477 | $99,846 | | Total assets | $1,032,729 | $1,137,177 | | Total current liabilities | $384,544 | $338,547 | | Total liabilities | $1,526,041 | $1,573,065 | | Total stockholders' deficit | $(656,746) | $(598,795) | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) This table presents the company's unaudited condensed consolidated statements of operations and comprehensive loss, detailing revenue, expenses, and net loss for the three months ended March 31, 2025, and 2024 Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share data): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change ($k) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $118,856 | $133,479 | $(14,623) | (11.0)% | | Total costs and operating expenses | $182,497 | $201,140 | $(18,643) | (9.3)% | | Loss from operations | $(63,641) | $(67,661) | $4,020 | (6.0)% | | Net loss | $(56,495) | $(50,487) | $(6,008) | 11.9% | | Basic and diluted net loss per common share | $(4.85) | $(4.58) | $(0.27) | 5.9% | | Comprehensive loss | $(59,694) | $(51,076) | $(8,618) | 16.9% | Condensed Consolidated Statements of Cash Flows (unaudited) This table presents the company's unaudited condensed consolidated statements of cash flows, detailing cash used in operating, investing, and financing activities for the three months ended March 31, 2025, and 2024 Condensed Consolidated Statements of Cash Flows (in thousands): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change ($k) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(4,353) | $(40,309) | $35,956 | | Net cash used in investing activities | $(959) | $(716) | $(243) | | Net cash used in financing activities | $(250) | $(250) | $0 | | Net change in cash, cash equivalents, and restricted cash | $(5,534) | $(41,619) | $36,085 | | Cash, cash equivalents, and restricted cash at end of period | $66,520 | $94,878 | $(28,358) | Condensed Consolidated Statements of Stockholders' Deficit (unaudited) This table presents the company's unaudited condensed consolidated statements of stockholders' deficit, detailing changes in equity from December 31, 2024, to March 31, 2025 Changes in Total Stockholders' Deficit (in thousands): | Metric | December 31, 2024 | March 31, 2025 | | :--- | :--- | :--- | | Balance at period start | $(598,795) | $(598,795) | | Net loss | $(56,495) | $(56,495) | | Paid-in-kind dividend on preferred stock | $(5,885) | $(5,885) | | Stock-based compensation | $2,269 | $2,269 | | Change in cumulative translation adjustment | $(3,199) | $(3,199) | | Balance at period end | $(656,746) | $(656,746) | Notes to the Condensed Consolidated Financial Statements (unaudited) Note 1. Basis of Presentation This note outlines Sonder's business as a global provider of short and long-term accommodations, its financial reporting basis, and critical going concern issues. It details Nasdaq delisting notices, the company's mitigation plans, and the strategic Marriott Agreement, including key money receipt and fee deferrals - Sonder Holdings Inc. provides short and long-term accommodations in North America, Europe, and the Middle East, focusing on design-forward apartments and boutique hotels with tech-enabled service[31] - The company received Nasdaq delisting notices for delinquent 2024 Form 10-K and Q1 2025 10-Q filings, which were subsequently cured. A new notice was received for the Q2 2025 10-Q delinquency[35][36][37] - Management has 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[38] - Mitigation plans include engaging a financial advisor, cost optimization initiatives, a portfolio optimization program, and improving financial performance through the Marriott Agreement integration[39][44] - The company received the remaining $7.5 million of Key Money from Marriott on April 11, 2025, completing the $15.0 million investment. The Marriott Agreement was amended on August 5, 2025, to defer certain fees for up to 12 months[40][41] Note 2. Recently Issued Accounting Standards This note discusses two recently issued accounting standards, ASU No. 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), which the company is currently evaluating for their potential disclosure impact on its consolidated financial statements, with effective dates in 2025 and 2026, respectively - ASU No. 2023-09 (Income Taxes) requires enhanced disclosures for effective tax rate reconciliation and income taxes paid, effective for annual periods beginning January 1, 2025[49] - ASU 2024-03 (Expense Disaggregation Disclosures) requires additional information about specific expense categories in financial statement notes, effective for annual periods beginning January 1, 2026[50] Note 3. Revenue This note disaggregates the company's revenue into direct and indirect channels, showing an 11.0% decrease in total revenue for the three months ended March 31, 2025, primarily driven by a 28.7% decline in direct revenue, while indirect revenue saw a slight increase Total Revenues Disaggregated (in thousands): | Category | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change ($k) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Direct revenue | $41,507 | $58,254 | $(16,747) | (28.7)% | | Indirect revenue | $77,349 | $75,225 | $2,124 | 2.8% | | Total revenue | $118,856 | $133,479 | $(14,623) | (11.0)% | - Three Online Travel Agencies (OTAs) represented approximately 28%, 19%, and 15% of revenues for the three months ended March 31, 2025[53] Note 4. Balance Sheet Details This note provides detailed breakdowns of specific balance sheet accounts, including other current assets, other non-current assets, accrued liabilities, and other non-current liabilities, highlighting changes between March 31, 2025, and December 31, 2024 Other Current Assets (in thousands): | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Non-income tax assets | $7,785 | $8,150 | | Deposits due from landlords | $841 | $539 | | Other current assets | $1,159 | $1,044 | | Total other current assets | $9,785 | $9,733 | Accrued Liabilities (in thousands): | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued legal expenses | $23,617 | $18,540 | | Accrued compensation | $2,893 | $1,703 | | Accrued direct costs | $1,590 | $3,454 | | Accrued other liabilities | $6,363 | $8,924 | | Total accrued liabilities | $34,463 | $32,621 | Other Non-Current Liabilities (in thousands): | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Marriott key money liability | $7,250 | $7,344 | | Other | $820 | $769 | | Total other non-current liabilities | $8,070 | $8,113 | Note 5. Fair Value Measurement and Financial Instruments This note details the company's fair value measurements for financial instruments, categorizing them into a three-level hierarchy. It provides specific valuations for Preferred Stock Participation Rights, NPA Waiver Warrants, Earn Out Liability, and Public Warrants, noting changes in their fair values - The fair value hierarchy classifies inputs into Level 1 (quoted prices in active markets), Level 2 (quoted prices for similar assets/liabilities), and Level 3 (unobservable inputs)[61] Liabilities Measured at Fair Value (in thousands): | Category | Level 1 (Mar 31, 2025) | Level 3 (Mar 31, 2025) | Total (Mar 31, 2025) | Total (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | Preferred Stock Participation Rights | $— | $1,313 | $1,313 | $1,284 | | NPA Waiver Warrants | $995 | $— | $995 | $1,585 | | Earn Out Liability | $— | $15 | $15 | $15 | | Public Warrants | $203 | $— | $203 | $203 | | Total liabilities measured at fair value | $1,198 | $1,328 | $2,526 | $3,087 | - The change in fair value of the NPA Waiver Warrants for the quarter ended March 31, 2025, was $0.6 million[69] Note 6. Debt This note details the company's debt instruments, including Delayed Draw Notes, an Equipment Financing Agreement, and the 2022 Loan and Security Agreement (terminated in August 2025). It also covers subsequent financing activities in April and August 2025, including new notes and warrants, and a loan agreement with Marriott - The effective interest rate of the Delayed Draw Notes was 16.7% at both March 31, 2025, and December 31, 2024. The maturity date was extended to December 10, 2027, with PIK interest payments extended through March 31, 2025 (with an option to extend through December 31, 2026)[77][79] Long-Term Debt, Net (in thousands): | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Delayed Draw Notes Purchase Agreement, including capitalized PIK interest | $237,977 | $229,996 | | Equipment Financing Agreement (EFA) | $1,250 | $1,500 | | Less: debt discount related to NPA Waiver Obligation, net of amortization | $(1,158) | $(1,272) | | Less: debt discount related to Delayed Draw Warrants, net of amortization | $(3,880) | $(4,263) | | Less: unamortized deferred issuance costs | $(7,028) | $(7,725) | | Total debt, net | $227,161 | $218,236 | | Less: current portion of long-term debt | $(1,000) | $(1,000) | | Total long-term debt, net | $226,161 | $217,236 | - The 2022 Loan and Security Agreement was amended on April 11, 2025, reducing the revolving line of credit and letter of credit sublimit from $60.0 million/$45.0 million to $35.0 million/$35.0 million. This agreement was subsequently terminated on August 5, 2025[94][177][197] - On August 5, 2025, the company issued $24.54 million of units, comprising senior secured promissory notes (Investor Notes) and warrants. The Investor Notes mature on July 4, 2026, and accrue interest at 15.0% per annum, payable in kind quarterly[80][81][181][182] - On August 5, 2025, the company entered into a Loan Agreement with Marriott International, Inc. for senior secured Lender Notes to replace certain fees owed. These notes mature on July 4, 2026, and accrue interest at the prime rate plus 3.00% per annum, payable in kind monthly[82][83][190][191] Note 7. Redeemable Preferred Stock This note details the Series A Preferred Stock, including its issuance through August 2024 and April 2025 Securities Purchase Agreements. It outlines the conversion rights, cumulative dividend terms (15% through August 2025), and special participation rights granted to holders in future equity offerings - The August 2024 Preferred Financing involved the issuance of 43.3 million Series A Preferred Stock shares for approximately $43.3 million, resulting in an $83.8 million loss on preferred stock issuance[98][99] - On April 11, 2025, the company issued an additional 17.98 million shares of Series A Preferred Stock for $17.98 million in the April 2025 Preferred Financing[168] - Holders of Series A Preferred Stock are entitled to cumulative dividends, payable in cash or PIK, at a rate of 15.00% from August 13, 2024, through August 13, 2025, then decreasing rates thereafter. The company paid a $5.9 million PIK dividend for the three months ended March 31, 2025[107][108] - The Series A Preferred Stock is convertible into common stock at the holders' option, with an initial conversion price of the lower of $1.00 or a 10% discount to the lowest daily VWAP, but not less than $0.50[109] - Purchasers of Series A Preferred Stock have the right to purchase up to 25% of any equity offering within the next five years at 75% of the purchase price of other investors[102] Note 8. Leases This note details the company's operating lease agreements, including the components of lease expense, cash payments, and remaining maturities. It highlights a decrease in operating lease costs and ROU assets, primarily due to lease terminations and the portfolio optimization program Total Operating Lease Cost (in thousands): | Category | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Operating lease cost | $75,166 | $82,114 | | Short-term lease cost | $542 | $35 | | Variable lease cost | $1,512 | $265 | | Total operating lease cost | $77,220 | $82,414 | Supplemental Operating Lease Information (in thousands): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Cash payments for operating leases | $72,506 | $81,505 | | Operating ROU assets obtained in exchange for operating lease liabilities, net of adjustments | $(60,063) | $(81,886) | | Early lease terminations gains | $11,138 | $23,901 | Remaining Maturities for Operating Lease Liabilities (March 31, 2025, in thousands): | Period | Amount | | :--- | :--- | | Remaining 2025 | $194,858 | | 2026 | $252,684 | | 2027 | $225,388 | | 2028 | $198,696 | | 2029 | $152,657 | | Thereafter | $434,529 | | Gross lease payments | $1,458,812 | | Less: imputed interest | $(382,795) | | Total operating lease liabilities, net | $1,076,017 | - As of March 31, 2025, the company had $543.5 million in future lease payments for leases that have not yet commenced, with terms ranging from five to 20 years[118] Note 9. Warrants and Stockholders' Deficit This note provides details on various warrants and exchangeable stock, including SPAC Warrants, NPA Waiver Warrants, and Post-Combination Exchangeable Common Stock. It outlines their accounting treatment, fair values, and the total common stock reserved for future issuance - SPAC Warrants are accounted for as liabilities, with a fair value of $0.2 million at both March 31, 2025, and December 31, 2024[126] - NPA Waiver Warrants, issued for 500,000 shares at an exercise price of $0.01, are accounted for as liabilities, with a change in fair value of $0.6 million for the quarter ended March 31, 2025[69] Post-Combination Exchangeable Common Stock (in thousands, except per share amounts): | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Shares issued and outstanding | 550,959 | 551,072 | | Issuance price per share | $30.80 | $30.80 | | Net carrying value | $16,970 | $16,973 | Common Stock Reserved for Future Issuance (March 31, 2025): | Category | Shares | | :--- | :--- | | Convertible preferred stock | 42,633,000 | | Outstanding stock options | 2,199,839 | | Outstanding restricted stock units ("RSUs") | 2,472,335 | | Outstanding performance stock units ("PSUs") | 4,163,851 | | Outstanding market stock units ("MSUs") | 531,996 | | Outstanding Public Warrants liability | 724,997 | | Shares issuable pursuant to Earn Out Liability | 725,000 | | Outstanding former Series C and D preferred stock warrants liability | 21,281 | | Shares available for grant under the Employee Stock Purchase Plan | 463,930 | | Shares available for grant under the 2021 Equity Incentive Plan | 2,166,767 | | Shares available for grant under the 2023 Inducement Equity Incentive Plan | 228,864 | | Total common stock reserved for future issuance | 14,249,819 | Note 10. Equity Incentive Plans and Stock-Based Compensation This note details the stock-based compensation expense for various equity awards, including stock options, PSUs, RSUs, and MSUs, for the three months ended March 31, 2025, and 2024, showing a decrease in total expense. It also outlines the key assumptions used for valuing stock options Total Stock-Based Compensation Expense (in thousands): | Category | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Operations and support | $754 | $858 | | General and administrative | $1,245 | $1,845 | | Research and development | $233 | $263 | | Sales and marketing | $37 | $43 | | Total stock-based compensation expense | $2,269 | $3,009 | - Stock option expense was approximately $0.5 million for Q1 2025, down from $1.1 million in Q1 2024. Key assumptions for fair value in Q1 2025 included an expected term of 5.04-8.44 years, expected volatility of 51.5%, and a risk-free interest rate of 3.96%-4.21%[131][135] - RSU expense was approximately $1.0 million for Q1 2025, down from $1.3 million in Q1 2024[138] - PSU expense was approximately $0.4 million for Q1 2025, compared to zero in Q1 2024[137] - MSU expense was approximately $0.2 million for both Q1 2025 and Q1 2024[141] Note 11. Net Loss per Common Share This note presents the computation of basic and diluted net loss per common share, which are identical for both periods due to the company's net losses making all potentially dilutive securities anti-dilutive. It also lists the common stock equivalents excluded from the diluted EPS calculation Net Loss per Common Share (in thousands, except share data): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Net loss attributable to common stockholders | $(59,141) | $(50,487) | | Weighted average basic and diluted common shares outstanding | 12,183,604 | 11,031,861 | | Basic and diluted net loss per common share | $(4.85) | $(4.58) | Anti-Dilutive Potential Common Shares Excluded (March 31, 2025): | Category | Shares | | :--- | :--- | | Convertible preferred stock | 42,633,000 | | Options to purchase common stock | 2,199,839 | | Common stock subject to repurchase or forfeiture | 74,942 | | Outstanding RSUs | 2,472,335 | | Outstanding PSUs | 4,163,851 | | Outstanding MSUs | 531,996 | | Exchangeable shares | 550,959 | | Total common stock equivalents | 52,626,922 | Note 12. Commitments and Contingencies This note outlines the company's commitments and contingencies, including operating leases, surety bonds, and various legal and regulatory matters. It details ongoing litigation such as the New York City property dispute and multiple stockholder lawsuits, as well as tax contingencies related to VAT - The company had commitments from six surety providers totaling $38.3 million, with $14.6 million outstanding as of March 31, 2025[145] Accrued Legal and Tax Liabilities (in thousands): | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued liability for legal matters | $25,400 | $23,500 | | Accrued liability for tax matters | $14,400 | $15,300 | - The New York City litigation involves a breach of lease claim by the Broad Street Landlord, seeking no less than $3.9 million in damages, with a motion to amend the complaint to assert $37.0 million in damages. The appellate court affirmed liability but allowed discovery on damages[148][149] - Multiple putative stockholder class action and derivative lawsuits were filed in 2024-2025, alleging false and misleading statements and breach of fiduciary duties. The company believes these allegations are without merit and intends to defend vigorously[150][151][152][153] - The company favorably settled two lawsuits related to property leases for a total of $7.5 million, received in three tranches through January 2025[156] - The Upper Tribunal ruled against Sonder Europe in January 2025 regarding VAT accounting under the Tour Operators' Margin Scheme, requiring VAT on the full value of supplies. The company filed an appeal in March 2025[158] Note 13. Income Taxes This note reports the provision for income taxes for the three months ended March 31, 2025, and 2024, explaining that the difference from the U.S. statutory rate is primarily due to a full valuation allowance against deferred tax assets. It also mentions the recent enactment of the One Big Beautiful Bill Act (OBBBA) and its potential impact Provision for Income Taxes (in thousands): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change ($k) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Provision for income taxes | $717 | $187 | $530 | 283.4% | - The difference between the company's effective tax rate and the U.S. statutory rate of 21.0% is primarily due to a full valuation allowance related to its net deferred tax assets[164] - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, including significant tax provisions. The company is currently assessing its impact on consolidated financial statements[165] Note 14. Restructuring Activities This note details the company's restructuring activities, including a workforce reduction in February 2024 that affected 17% of the corporate workforce and incurred $3.0 million in costs. A subsequent reduction in force in April 2025 incurred $2.8 million in costs, expected to be paid in 2025 - In February 2024, the company completed a reduction in force affecting 17% of its corporate workforce, incurring approximately $3.0 million in restructuring costs, primarily for employee severance and benefits, which were substantially paid in Q1 2024[166] - In April 2025, the company completed another reduction in force, with approximately $2.8 million in associated restructuring costs, all expected to be paid out in the year ended December 31, 2025[167] Note 15. Subsequent Events This note describes significant events occurring after March 31, 2025, including April 2025 and August 2025 financing transactions, amendments to debt agreements (Sixth and Seventh NPA Amendments), the SVB Amendment, and the termination of the 2022 Loan and Security Agreement. It also notes the completion of Marriott Key Money receipt - On April 11, 2025, the company issued 17.98 million shares of Series A Preferred Stock for $17.98 million in the April 2025 Preferred Financing[168] - The Sixth NPA Amendment (April 11, 2025) modified the 2021 Purchase Agreement, including a 15% cancellation of principal/accrued interest, interest rate reduction, and extension of the PIK option. It also led to the issuance of NPA Warrants to purchase up to 5 million shares at $1.00 per share[175][176] - The SVB Amendment (April 11, 2025) reduced the revolving line of credit and letter of credit sublimit from $60.0 million/$45.0 million to $35.0 million/$35.0 million. The 2022 Loan and Security Agreement was terminated on August 5, 2025[177][197] - On April 11, 2025, the company received the remaining $7.5 million of Key Money under the Marriott Agreement, completing the $15.0 million investment[180] - On August 5, 2025, the company entered into a Note and Warrant Purchase Agreement, issuing $24.54 million in units (senior secured promissory notes and warrants). The Investor Notes mature July 4, 2026, with 15.0% PIK interest[181][182] - On August 5, 2025, the company entered into a Loan Agreement with Marriott International, Inc. for senior secured Lender Notes to replace certain fees owed. These notes mature July 4, 2026, with prime rate + 3.00% PIK interest[190][191] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Sonder's business model, recent developments, and management's discussion of opportunities, challenges, and risks. It highlights the company's focus on achieving sustainable positive Adjusted Free Cash Flow (FCF) through a portfolio optimization program, the strategic Marriott integration, and cost reduction initiatives, while also presenting key business metrics and financial performance for the period - Sonder's business model involves leasing, furnishing, and operating properties for short and long-term stays, distributed through direct and indirect channels. Full integration with Marriott's digital channels and Bonvoy program was completed in Q2 2025[200][203] - A primary focus is the 'Cash Flow Positive Plan' to achieve sustainable positive Adjusted FCF. Adjusted FCF improved significantly to $(6.9) million for Q1 2025, compared to $(28.5) million for Q1 2024[222][260] - The portfolio optimization program, initiated in November 2023, aims to mitigate losses from underperforming properties. By June 30, 2025, 85 buildings (3,300 units) with finalized exit agreements were exited[223] - The Marriott Agreement is anticipated to deliver significant revenue opportunities and operating efficiencies, including substantial uplift in RevPAR and customer acquisition cost savings through improved distribution and loyalty program access[224] - Cost reduction initiatives announced in April 2025 are expected to deliver approximately $50 million of annualized cost savings, primarily from headcount reductions, software savings, and other efficiencies related to the Marriott integration[224] Key Business Metrics (Three months ended March 31): | Metric | 2025 | 2024 | Change (No.) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Live Units (end of period) | 9,400 | 11,900 | (2,500) | (21.0)% | | Bookable Nights | 858,000 | 1,081,000 | (223,000) | (20.6)% | | Occupied Nights | 712,000 | 821,000 | (109,000) | (13.3)% | | Total Portfolio | 10,050 | 15,300 | (5,250) | (34.3)% | | RevPAR | $139 | $123 | $16 | 13.0% | | ADR | $167 | $163 | $4 | 2.5% | | Occupancy rate | 83.0% | 75.9% | 7.1% | 9.4% | Results of Operations (in thousands, except percentages): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $118,856 (100.0%) | $133,479 (100.0%) | | Total costs and operating expenses | $182,497 (153.5%) | $201,140 (150.7%) | | Loss from operations | $(63,641) (53.5%) | $(67,661) (50.7%) | | Net loss | $(56,495) (47.5%) | $(50,487) (37.8%) | | Comprehensive loss | $(59,694) (50.2%) | $(51,076) (38.3%) | Non-GAAP Financial Measures (in thousands): | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Adjusted FCF | $(6,858) | $(28,519) | | Adjusted EBITDA | $(56,696) | $(56,270) | | Adjusted EBITDAR | $21,123 | $26,311 | - Management concludes there is substantial doubt about the company's ability to continue as a going concern for at least one year from the report's issuance date, despite recent financing and cost optimization initiatives[276] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's quantitative and qualitative disclosures about market risk since the Annual Report - There have been no material changes in the company's market risk from the information provided in the Annual Report[300] Item 4. Controls and Procedures This section reports that the company's disclosure controls and procedures were not effective as of March 31, 2025, due to identified material weaknesses in internal control over financial reporting. These weaknesses relate to leases, asset impairment, preferred stock transactions, and overall control activities, environment, and communication. Remediation plans are ongoing - The company's disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses in internal control over financial reporting[301] - Identified material weaknesses include control deficiencies in the process to capture and record lease agreements timely and accurately, lack of design and effective controls for asset impairment identification and valuation, and insufficient precision in management's review of preferred stock transactions[306][307][308] - Additional COSO material weaknesses were identified in control activities (formal policies/procedures), control environment (sufficient personnel), and information & communication (timely financial information flow)[309] - Remediation plans are ongoing, focusing on hiring experienced talent, implementing control design changes for leases, improving policies and procedures, utilizing external subject matter professionals for asset impairment, and enhancing review processes for preferred stock[310][312][314][315][316] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity, defaults on senior securities, mine safety disclosures, other information, and a list of exhibits Item 1. Legal Proceedings This section incorporates by reference the detailed information regarding legal proceedings from Note 12, "Commitments and Contingencies," in Part I, Item 1 of this Quarterly Report on Form 10-Q - Information regarding legal proceedings is incorporated by reference from Note 12, "Commitments and Contingencies," in Part I, Item 1 of this Quarterly Report on Form 10-Q[320] Item 1A. Risk Factors This section outlines key risk factors, including the company's ineligibility to use certain registration statements due to delayed SEC filings, the ongoing need for additional capital, and the potential adverse effects of its indebtedness, credit facilities, and the special rights associated with its outstanding preferred stock on its financial and operational flexibility - Delayed SEC filings render the company ineligible to use Form S-3 for securities registration, requiring the use of Form S-1, which is more time-consuming and costly. This also suspended Form S-8 availability for equity incentive plans, negatively impacting employee morale and recruitment[321][322] - The company may require additional equity or debt financing to support business growth, which could result in significant dilution for existing stockholders or impose restrictive covenants on its operations[323] - Indebtedness and credit facilities contain financial covenants and restrictions that limit the company's operational flexibility. Non-compliance could lead to acceleration of obligations, severely impacting its business and financial condition[325] - Outstanding Series A Preferred Stock ranks senior to common stock, has a liquidation preference, cumulative dividends (15% through August 13, 2025), and grants holders the right to purchase up to 25% of future equity offerings at a discounted price[326][327][328][329][330] - The exercise or conversion of outstanding securities, including Preferred Stock, Public Warrants, and other Warrants (totaling 60,113,000 Preferred Stock, 724,997 Public Warrants, and 26,717,683 other Warrants), could significantly dilute existing stockholders' ownership interests and depress common stock prices[332][337] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms that there were no unregistered sales of equity securities, use of proceeds from unregistered sales, or issuer purchases of equity securities during the reporting period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the period[333] Item 3. Defaults Upon Senior Securities This section states that the company did not experience any defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[334] Item 4. Mine Safety Disclosures This section indicates that the disclosures related to mine safety are not applicable to the company's operations - Mine safety disclosures are not applicable to the company[335] Item 5. Other Information This section reports that no directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025[336] Item 6. Exhibits This section lists all exhibits filed as part of this report or incorporated by reference, including organizational documents, warrant agreements, and certifications, providing a comprehensive record of supporting legal and financial documents - The exhibits include Amended and Restated Certificate of Incorporation, Certificate of Amendment, Certificate of Designation for Series A Preferred Stock, Amended and Restated Bylaws, Specimen Stock/Warrant Certificates, and Certifications of Principal Executive Officer and Principal Financial Officer[339] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the report - The report was signed on behalf of Sonder Holdings Inc. by Rahul Thumati, Interim Chief Accounting Officer, on August 25, 2025[343]