Sonder(SOND) - 2022 Q4 - Annual Report

FORM 10-K General Information This section provides general information about Sonder Holdings Inc.'s Form 10-K filing, including its Nasdaq listings, filer status, and market value Registrant Information Sonder Holdings Inc., a Delaware corporation, filed its annual report on Form 10-K for the fiscal year ended December 31, 2022. Its common stock and warrants are traded on The Nasdaq Stock Market LLC under the symbols SOND and SONDW, respectively. The company is classified as an accelerated filer and an emerging growth company - Sonder Holdings Inc. is a Delaware corporation, with its principal executive offices in San Francisco, California[2] Securities Registered on Nasdaq | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------------------------------------------------------------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.0001 per share | SOND | The Nasdaq Stock Market LLC | | Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share | SONDW | The Nasdaq Stock Market LLC | - The registrant is an accelerated filer and an emerging growth company, but not a well-known seasoned issuer or a large accelerated filer[2][5] Filing Status The registrant confirmed timely filing of all required reports under the Securities Exchange Act of 1934 during the preceding 12 months and electronic submission of all Interactive Data Files. The aggregate market value of voting and non-voting common equity held by non-affiliates as of June 30, 2022, was $214.7 million - The registrant has filed all required reports during the preceding 12 months and has been subject to filing requirements for the past 90 days[4] - The registrant has electronically submitted every Interactive Data File required during the preceding 12 months[4] Market Value and Shares Outstanding | Metric | Value | | :---------------------------------------------------------------- | :------------ | | Aggregate market value of voting and non-voting common equity held by non-affiliates (as of June 30, 2022) | $214.7 million | | Shares of common stock outstanding (as of March 6, 2023) | 219,282,857 | Special Note Regarding Forward-Looking Statements This section cautions investors about forward-looking statements, detailing their nature, specific examples, and the inherent risks and uncertainties that could cause actual results to differ materially Nature of Forward-Looking Statements This section highlights that the Form 10-K contains forward-looking statements regarding future events or financial/operating performance, identifiable by words like 'may,' 'will,' 'expects,' 'plans,' and 'anticipates.' These statements involve risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements relate to future events or expected future financial or operating performance[11] - Such statements are identified by words like 'may,' 'will,' 'should,' 'expects,' 'plans,' 'anticipates,' 'could,' 'intends,' 'target,' 'projects,' 'contemplates,' 'believes,' 'estimates,' 'predicts,' 'potential,' or 'continue,' or their negatives[11] - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations[11] Specific Forward-Looking Statements The report details numerous specific forward-looking statements, including the company's focus on achieving positive quarterly Free Cash Flow in 2023, financial and operating forecasts, ability to achieve profitability, trends in travel and hospitality, pricing strategies, capital expenditure expectations, and plans for market expansion and technology investments - Focus on achieving positive quarterly Free Cash Flow within 2023 without additional fundraising and targeting 'capital light' lease signings[13] - Financial, operating, and growth forecasts and projections[13] - Expectations for business, revenue, expenses, operating results, and financial condition[13] - Ability to achieve or maintain profitability in the future[13] - Trends in the travel and hospitality industries, including anticipated timing and nature of any travel recovery[13] - Pricing and revenue management strategies, pricing and occupancy forecasts, and expectations about demand elasticity[13] - Expectations concerning future transaction structures and lease terms (rent, abatement, capital expenditure provisions)[13] - Potential ancillary revenue opportunities and ability to improve revenue management capabilities[13] - Anticipated capital expenditure obligations, including real estate owners' funding of capital expenditures[13] - Expected adequacy of capital resources and anticipated use of financing proceeds[13] - Trends in corporate travel and potential for additional group and corporate travel revenue[13] - Anticipated occupancy rates and expectations about guests' average length of stay[13] - Ability to anticipate and satisfy guest demands, including new features, amenities, or services[13] - Expectations about geographic market mix and product mix (hotels vs. apartments) and their financial impact[13] - Expectations about employee relations and ability to attract and retain qualified personnel[13] - Plans to roll out additional features, amenities, and technologies, and beliefs about technology investments' positive impact[13] - Future competitive advantages and anticipated differentiation in cost structure and guest experience[13] - Expectations for increased cost efficiencies and technological improvements[13] - Expectations and plans for expanding in existing and new markets and accommodation categories[13] - Anticipated growth in Live Units and Contracted Units, including unit removals[13] - Expectations about relationships with third-party distribution channels and indirect channels[13] - Anticipated seasonality and other variations in results of operations, including RevPAR forecasts[13] - Anticipated effects of the COVID-19 pandemic or other public health crises[13] - Ability to continue meeting Nasdaq listing standards[13] - Assessments and beliefs regarding timing and outcome of pending legal proceedings and potential liabilities[13] - Assessments and estimates determining effective tax rate and regarding tax-related audits[13] - Other expectations, beliefs, plans, strategies, anticipated developments, and non-historical facts[13] Reliance on Forward-Looking Statements Investors are cautioned not to place undue reliance on forward-looking statements due to inherent risks and uncertainties, many beyond the company's control. The company undertakes no obligation to update these statements, except as required by law, and advises considering risk factors detailed elsewhere in the report - Investors should not place undue reliance on forward-looking statements due to known and unknown risks, uncertainties, and other factors, many beyond the company's control[14] - The company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the report date, except as required by law[14] - Additional factors that could cause results to differ materially are detailed in other SEC filings, and new risks and uncertainties may emerge over time[15] PART I This part covers the company's business operations, risk factors, properties, legal proceedings, and mine safety disclosures Item 1. Business Sonder aims to revolutionize hospitality by offering tech-enabled, design-led accommodations, including serviced apartments and hotel rooms, across 43 cities in 10 countries. The company leases properties, furnishes them, and manages operations using proprietary technology and 24/7 support, focusing on a mobile-first guest experience and consistent quality - Sonder's mission is to revolutionize hospitality through innovative, tech-enabled service and thoughtfully designed accommodations[18] - The company leases and operates serviced apartments and spacious hotel rooms in 43 cities across 10 countries[18] - Sonder manages properties using proprietary and third-party technologies, delivering services via the Sonder app and 24/7 on-the-ground support, emphasizing a mobile-first guest experience[19] Overview - As of December 31, 2022, Sonder had approximately 9,700 units available for guests to book at over 250 properties[18] - Sonder works directly with real estate owners to lease, furnish, and decorate properties, making them available for booking through direct and indirect channels[19] - The diverse product portfolio includes multiple-bedroom apartments with full kitchens and laundry, as well as hotel rooms/suites, catering to various traveler types[20] Guest Experience Enhancement - Sonder's mobile-first guest experience, supported by the Sonder app, allows for virtual check-in, one-touch WiFi, digital concierge services, on-demand customer service, and in-app check-out[23][25][31] - The company emphasizes design and creativity, with properties featured in various publications, offering amenities like fully equipped kitchens and private laundry in apartment-style spaces[26] - While the app promotes self-service, a 24/7 guest services team is available via app, phone, text/WhatsApp, and email, with local team members for in-person support[25] Supply Growth - As of December 31, 2022, Sonder had approximately 9,700 Live Units and 7,900 Contracted Units across 43 cities and 10 countries[27] - The company plans to focus 2023 supply growth primarily on existing Sonder markets and intends to expand into additional markets in Europe and North America in the future[27] - The majority of Sonder's portfolio consists of commercial or mixed-use apartment developments, with a growing proportion of hotels, and future plans to add resorts[28][29][30] Demand Generation and Revenue Management - Historically, demand was generated primarily through Online Travel Agencies (OTAs) like Airbnb, Booking.com, and Expedia, which accounted for 50.1% of 2022 revenue[32] - Direct bookings through Sonder.com, the Sonder app, or sales personnel accounted for approximately 47.2% of total revenue in 2022, up from 51.6% in 2021[33] - Sonder uses data science and pricing automation technology for dynamic pricing and is developing an internal sales team for corporate and group travel[34][35] - The company is exploring ancillary revenue opportunities such as guaranteed early check-in/late check-out, room upgrades, and value-added amenities[36] Leases and Transaction Process - Sonder leases all properties, primarily using fixed leases, but also offers flexible structures like mixed leases (fixed fee plus revenue share) and revenue share agreements[37] - Typical property leases have a 5- to 7-year initial term with renewal options, often including upfront rent abatement and downside protections[38] - Many leases include upfront allowances from real estate owners to offset capital invested in preparing and furnishing buildings, enabling 'capital light' operations for Sonder[40] Operations - Operations teams focus on efficient building openings, ongoing operations, and guest service, supported by local staff and central teams for supply chain, design, and development[41] - Sonder has a global supply chain for furnishings and decor, with central warehouses in the US/Canada and local providers in other regions, focusing on quality and consistency[42] - Day-to-day operations, including guest inquiries and housekeeping, are managed by central and local teams using proprietary and third-party software[44] Competition - Sonder operates in two highly competitive environments: attracting guests and securing desirable real estate supply[45] - For guests, Sonder competes with major upscale/upper upscale hotel operators (Hilton, Marriott, Hyatt), boutique hotels, and alternative accommodation providers (Airbnb, Vrbo)[46][48] - For real estate supply, Sonder competes with traditional long-term leasing, other short-term rental companies, and traditional hotel property managers[49] - Sonder offers value to real estate owners by eliminating lengthy lease-up periods, minimizing sales/marketing costs, simplifying rent collection, and improving property performance through technology and design[50] Regulatory Compliance - Sonder's operations are subject to extensive U.S. and foreign federal, state, and local laws and regulations across various areas, including property, privacy, employment, and securities[51][52][54][57][58][59] - Before signing new leases, local legal counsel is engaged to identify regulatory requirements such as licensing, zoning, building codes, accessibility, and tax compliance[53] - The company implements technical and organizational security measures to protect personal data, complying with regulations like EU GDPR, CCPA/CPRA, and UK GDPR[56] - The regulatory environment is complex and evolving, with laws often not specifically designed for innovative hospitality providers like Sonder, leading to uncertainty in application[60] Environmental, Social and Governance (ESG) - Sonder established a dedicated Sustainability, Partnerships, and Social Impact function in 2020 to support responsible business practices[61] - The company's ESG goal is to foster social, environmental, and economic well-being through a 'People and Planet' framework[61] - Initial ESG efforts include publishing corporate social responsibility policies (Supplier Code of Conduct, DEI Statement, Modern Slavery Act Statement, Zero Tolerance policy) and initiatives focused on sustainability (energy, water, single-use plastics)[61] Employees and Culture - As of December 31, 2022, Sonder had approximately 993 employees in the U.S. and 702 internationally, comprising 995 salaried and 700 hourly employees[62] - The company's culture is defined by ten leadership principles aimed at fostering innovation, strategic movement, and an inspiring workplace[64] - Sonder is committed to Diversity, Equity, and Inclusion (DEI), with a working group and employee resource groups to ensure all employees, guests, and partners feel safe, respected, and included[65][66] Intellectual Property - Sonder protects its proprietary rights through trademarks, domain names, copyrights, trade secrets, and contractual provisions[67] - As of December 31, 2022, the company had 104 trademark registrations and pending applications, including 'Sonder' in multiple countries and its bird logo[68] - Sonder is the registered holder of over 80 domain names, including 'sonder.com', and uses confidentiality agreements with employees and partners[69] Seasonality - Sonder's occupancy and pricing vary seasonally due to weather, local events, holidays, and property location/type[70] - Revenue per available room (RevPAR) tends to be lower in the first and fourth quarters due to seasonal factors[70] - The effect of seasonality is expected to vary as the company's market and product mix evolves[70] Corporate Information & Available Information - Sonder Holdings Inc. was originally incorporated in Delaware on July 21, 2020, as Gores Metropoulos II, Inc., a SPAC, and consummated a business combination with Legacy Sonder on January 18, 2022[71] - The company makes its SEC filings and other investor information available free of charge on the Investor Relations page of its website, investors.sonder.com[73] Item 1A. Risk Factors This section outlines significant risks that could materially harm Sonder's business, operating results, and financial condition. Key risks include potential failure to achieve positive free cash flow, adverse effects from macroeconomic factors and market changes, difficulties in securing and managing properties, operational challenges, intense competition, regulatory complexities, and risks related to indebtedness and securities ownership - The company's business, operating results, financial condition, or prospects could be harmed by risks and uncertainties not currently known or deemed immaterial[74] - Key risks include potential failure to achieve positive free cash flow, negative impacts from inflation and macroeconomic factors, and challenges in negotiating or renewing property leases[76][82][85][87] - Other significant risks involve delays in real estate development, difficulties in integrating new properties, limited operating history, intense competition, reliance on third-party distribution channels, and susceptibility to international operational risks[76][92][95][126][131][140] Risk Factor Summary - Actual results may differ materially from forecasts and projections[76][79] - Focus on achieving positive free cash flow within 2023 without additional fundraising may be unsuccessful; restructuring initiatives may not provide expected benefits and could adversely affect the company[76][79] - Results could be negatively affected by inflation, macroeconomic factors, and changes in travel, hospitality, real estate, and vacation markets[76][79] - Inability to negotiate satisfactory leases, onboard new properties timely, or renew/replace existing properties on satisfactory terms[76][79] - Delays in real estate development and construction projects could adversely affect revenue generation[76][79] - Newly leased properties may generate revenue later than estimated and be more difficult/expensive to integrate[76][79] - Limited operating history and evolving business make future prospects and challenges difficult to evaluate[76][79] - Inability to manage growth effectively[76][79] - Higher than expected costs for opening, operation, and maintenance of leased properties[76][79] - Dependence on landlords for suitable property delivery and maintenance[76][79] - Long-term and fixed-cost leases limit flexibility[76][79] - Leases may be subject to early termination, which can be disruptive and costly[76][79] - Public health concerns (e.g., COVID-19) may have a material detrimental impact[76][79] - Inability to attract new guests or generate repeat bookings[76][79] - Inability to introduce upgraded amenities, services, or features timely and cost-efficiently[76][79] - Highly competitive hospitality market[76][79] - Reliance on third-party distribution channels[76][79] - Results of operations vary from period-to-period; historical performance may not be indicative of future performance[76][79] - Long-term success depends on international expansion, susceptible to associated risks[76][79] - Business depends on reputation and brand strength; deterioration could adversely impact market share, revenues, etc[76][79] - Claims, lawsuits, and other proceedings could adversely affect business and financial condition[76][79] - Liability or reputational damage for guests' activities or other incidents at properties[76][79] - Claims and liabilities associated with health and safety issues and hazardous substances[76][79] - Challenges in attracting and retaining skilled personnel, including hourly and unionized labor[76][79] - Identified material weaknesses in internal control over financial reporting[76][79] - Reliance on third parties for important services and technologies[76][79] - Processing, storage, use, and disclosure of personal data expose to security breaches and regulatory risks[76][79] - Failure to comply with privacy, data protection, consumer protection, marketing, and advertising laws[76][79] - Risks related to intellectual property[76][79] - Highly regulated business across multiple jurisdictions, including evolving short-term rental regulations and tax laws[76][79] - May require additional capital, which might not be available timely or on favorable terms[76][79] - May fail to continue to meet Nasdaq's listing standards[76][79] - Indebtedness and credit facilities contain financial covenants and restrictions[76][79] Risks Related to Business and Industry - Sonder's forecasts and projections, including revenues, margins, profitability, and Live Units, are subject to significant uncertainties and may prove incorrect, adversely affecting stock value[80][81] - The Cash Flow Positive Plan, aiming for positive quarterly Free Cash Flow by 2023, may be unsuccessful, and restructuring efforts could lead to management distraction, reputational damage, or employee attrition[82][83] - Business is highly sensitive to travel, hospitality, real estate market trends, and general economic conditions (e.g., recessions, inflation), which can reduce demand and unit supply[85][86] - Inability to secure or renew leases for attractive properties on favorable terms, or delays in development projects, could limit growth and cause financial forecasts to be missed[87][89][91][92][94] - The COVID-19 pandemic and future public health crises have materially impacted operations, leading to reduced travel demand, increased operating costs, and potential disruptions in property portfolio growth[115][116][117] - Failure to attract new guests or generate repeat bookings due to various factors (e.g., unmet expectations, competition, negative publicity) would adversely affect revenue and financial condition[118] - The hospitality market is highly competitive and fragmented, with global hotel brands, regional chains, independent hotels, and OTAs as competitors, potentially leading to reduced market share or increased costs[126][127][128][129] - Reliance on third-party distribution channels (OTAs) for over half of 2022 revenues poses risks if partners perform inadequately, terminate agreements, or reduce visibility of Sonder's units[131][132][133][134] - Sonder has identified material weaknesses in internal control over financial reporting related to lease agreement processes and control design/testing, which could lead to financial misstatements[163][165] - The company relies on third-party technologies and services for critical operations, and any failures, defects, or inability to obtain/integrate these could harm business and increase costs[176][178] - Supply chain interruptions (e.g., from COVID-19, natural disasters, trade restrictions) may increase costs or reduce revenues due to unavailability of materials or logistics disruptions[197] Risks Related to Government Regulation - Sonder operates in various jurisdictions with diverse and evolving regulatory and taxation requirements, including zoning, licensing, and health and safety, which increase compliance costs and potential liability[224] - Regulatory developments, such as ordinances limiting short-term rental durations, could increase costs, restrict operations, and reduce available units[225] - Compliance with public company laws and regulations (Sarbanes-Oxley Act, Dodd-Frank Act, Nasdaq standards) incurs substantial legal, accounting, and management expenses, diverting resources[230] - Failure to comply with U.S. and foreign privacy and data protection laws (e.g., EU GDPR, CCPA/CPRA) could lead to significant liability, negative publicity, and erosion of trust[233][234][235][236][242] - Non-compliance with consumer protection, marketing, and advertising laws (e.g., TCPA) could result in fines, restrictions on business, and adverse effects on guest relationships and revenues[243] Risks Related to Indebtedness and Liquidity - Sonder may require additional capital for growth or to address business challenges, and such funds might not be available timely or on favorable terms, especially after the Silicon Valley Bank closure[246] - As of December 31, 2022, the company had $183.2 million in Delayed Draw Notes, secured against substantially all assets, increasing vulnerability to adverse economic conditions and limiting cash flow for operations[247][248] - Indebtedness and credit facilities contain financial covenants and restrictions that limit operational and financial flexibility, potentially hindering business strategy execution and increasing default risk[247][249] Risks Related to Ownership of Securities - Sonder may fail to meet Nasdaq listing standards, particularly the $1.00 minimum bid price, which could lead to delisting and adversely affect liquidity, market price, and capital raising ability[250] - Resales of a significant number of common stock shares could depress the market price and impair the ability to raise additional equity capital[251] - The market price and trading volume of common stock and warrants may be volatile due to various factors, including financial results, personnel changes, and broader market disruptions, potentially leading to significant declines[253][256] - Future issuances of debt or equity securities may adversely affect the market price of common stock and dilute existing stockholders[257] - Public Warrants may expire worthless if the exercise price is not met, and their terms can be amended adversely to holders with 50% approval[258][259] - The company may redeem unexpired Public Warrants at a disadvantageous time and price, making them worthless, and significant warrant exercises could dilute common stock[260][262] - Bylaws designate Delaware courts as the exclusive forum for certain stockholder actions, potentially limiting stockholders' ability to choose a favorable judicial forum[263][264] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[265] Item 2. Properties Sonder's corporate staff primarily works remotely, but the company leases office spaces in the U.S., Montreal, and London. Its main furniture distribution warehouse is in Roanoke, Texas, with smaller storage spaces elsewhere. The company believes its current facilities are adequate and suitable alternatives are available - A substantial percentage of Sonder's corporate staff works remotely[266] - Sonder leases office space for corporate and administrative purposes in the United States, Montreal, Quebec, and London, England[266] - The former global headquarters in San Francisco, California, with approximately 20,000 square feet, will not have its lease renewed after May 2023[266] - Sonder's principal warehouse for furniture distribution in the U.S. and Canada is a third-party facility in Roanoke, Texas, utilizing approximately 160,000 square feet[268] - The company believes its existing facilities are adequate for near-term needs and suitable alternative space would be available on commercially reasonable terms[269] Item 3. Legal Proceedings Sonder is involved in ongoing litigation with its former landlord at 20 Broad Street, New York, regarding Legionella bacteria contamination. Sonder withheld rent due to health risks, leading to a lawsuit from the landlord for $3.9 million, to which Sonder filed counterclaims for significant damages. The company intends to vigorously defend itself - Sonder expects to be involved in litigation incidental to the ordinary course of business[270] - A significant legal proceeding involves a lawsuit filed by the landlord of 20 Broad Street, New York, seeking at least $3.9 million for breach of lease[271] - Sonder withheld rent due to Legionella bacteria contamination and associated health risks, filing counterclaims for significant damages[271] - The summary judgment motion for this case was under submission as of December 21, 2021, with no ruling issued[271] Item 4. Mine Safety Disclosures This item is not applicable to Sonder Holdings Inc - Item 4. Mine Safety Disclosures is not applicable[272] PART II This part details market information for common equity, management's discussion and analysis of financial condition, results of operations, and market risk disclosures Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sonder's common stock and publicly traded warrants are listed on the Nasdaq Global Select Market. As of December 31, 2022, there were 148 holders of record for common stock and 15 for warrants. The company does not intend to pay cash dividends in the foreseeable future. No unregistered sales or issuer purchases of equity securities occurred - Sonder's common stock and publicly traded warrants trade on The Nasdaq Global Select Market under 'SOND' and 'SONDW' respectively[275] Holders of Record (December 31, 2022) | Security | Holders of Record | | :---------------- | :---------------- | | Common Stock | 148 | | Publicly Traded Warrants | 15 | - The company does not intend to declare or pay any cash dividends in the foreseeable future[276] - No unregistered sales of equity securities or issuer purchases of equity securities were reported[277][278][279] Market Information, Holders of Common Stock, and Dividends - Sonder's common stock and publicly traded warrants are traded on the Nasdaq Global Select Market[275] - As of December 31, 2022, there were 148 holders of record of common stock and 15 holders of record of publicly traded warrants[275] - The company does not intend to declare or pay any cash dividends in the foreseeable future[276] Stock Performance Graph - The report includes a stock performance graph comparing Sonder's common stock, the Nasdaq Composite Index, and the S&P 500 from January 19, 2022, through December 31, 2022[281] - The initial value of Sonder's common stock on January 19, 2022, was $8.22 per share[281] - Historical stock price performance is not indicative of future performance[281] Item 6. [Reserved] This item is intentionally left blank Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides an overview of Sonder's financial condition and results of operations, highlighting the shift to a Cash Flow Positive Plan, supply growth strategies, demand generation efforts, and the impact of the Business Combination and restructuring. It details key business metrics, financial performance, liquidity, and critical accounting estimates for the fiscal year ended December 31, 2022 - Sonder's MD&A covers financial condition and results of operations for the fiscal year ended December 31, 2022, with comparisons to 2021[282][284] - The company's strategy shifted from hyper-growth to achieving positive quarterly Free Cash Flow (FCF) within 2023, driven by cost reductions, slower new unit signings, and focus on 'capital light' deals[287] - Key business metrics include Live Units, Bookable Nights, Occupied Nights, RevPAR, ADR, and Occupancy Rate, all showing significant increases year-over-year due to travel recovery and strategic shifts[300][301][304][308][309] Overview - Sonder aims to revolutionize hospitality with tech-enabled, design-led accommodations, operating serviced apartments and hotel rooms in 43 cities across 10 countries[286] - As of December 31, 2022, Sonder had approximately 9,700 units available for guests at over 250 properties[286] Management Discussion Regarding Opportunities, Challenges, and Risks - Sonder's Cash Flow Positive Plan, announced June 9, 2022, focuses on achieving positive quarterly FCF within 2023 by reducing cash costs, slowing new unit signings, targeting 'capital light' properties, and implementing rapid payback RevPAR initiatives[287][343] - Live Units grew 27.6% year-over-year to over 9,700 in 2022, driven by converting Contracted Units, with a focus on high-quality, 100% capital light deals for future signings[289] - Direct bookings accounted for 42.2% of total bookings in 2022, with efforts to expand corporate business through GDS platforms and corporate travel accounts[291][292] - Technology investments are crucial for user experience, hospitality operations, and reducing operating costs, underpinning booking, check-out, pricing, and demand generation[293] - The Business Combination on January 18, 2022, resulted in Sonder becoming a publicly traded company, incurring additional annual expenses for regulatory compliance, insurance, and administrative resources[294][295] - Restructuring initiatives in mid-2022 and March 2023 led to a 21.0% reduction in corporate roles and 7.0% in frontline roles, incurring $4.0 million in costs in 2022, with an expected $10.0 million in annualized savings from the 2023 reduction[296][297] Key Business Metrics Key Business Metrics (Year Ended December 31) | Metric | 2022 | 2021 | Change (No.) | Change (%) | | :-------------------- | :----- | :----- | :----------- | :--------- | | Live Units (End of Period) | 9,700 | 7,600 | 2,100 | 27.6 % | | Bookable Nights | 3,051,000 | 2,032,000 | 1,019,000 | 50.1 % | | Occupied Nights | 2,466,000 | 1,380,000 | 1,086,000 | 78.7 % | | Total Portfolio | 17,600 | 18,100 | (500) | (2.8)% | | RevPAR | $151 | $115 | $36 | 31.3 % | | ADR | $187 | $169 | $18 | 10.7 % | | Occupancy Rate | 81.0 % | 68.0 % | 13.0 % | 19.1 % | - Live Units increased by 27.6% year-over-year to 9,700, driven by converting Contracted Units. The top five cities accounted for 38.4% of Live Units[300][303] - Bookable Nights increased by 50.1% and Occupied Nights by 78.7% year-over-year, largely due to Live Unit growth and a strategy shift targeting higher occupancy[300][307] - RevPAR increased by 31.3% year-over-year to $151, driven by a 19.1% Occupancy Rate increase and a 10.7% ADR increase, reflecting continued travel recovery[300][309] Impact of COVID-19 and Macroeconomic Factors - Financial results for 2020, 2021, and H1 2022 were materially adversely affected by the COVID-19 pandemic[310] - While quarterly RevPAR has generally improved since May 2020, the extent and duration of travel recovery remain uncertain due to virus variants, infection rates, and governmental responses[310] - Macroeconomic factors like inflationary pressures, rising interest rates, market volatility, and geopolitical conflicts could adversely affect business and potentially decelerate travel recovery[310] Results of Operations Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | 2022 | % of Revenue | 2021 | % of Revenue | | :------------------------------------------------- | :------- | :----------- | :------- | :----------- | | Revenue | $461,083 | 100.0 % | $232,944 | 100.0 % | | Cost of revenue (excluding depreciation and amortization) | 320,016 | 69.4 % | 201,445 | 86.5 % | | Operations and support | 211,081 | 45.8 % | 142,728 | 61.3 % | | General and administrative | 132,445 | 28.7 % | 106,135 | 45.6 % | | Research and development | 28,896 | 6.3 % | 19,091 | 8.2 % | | Sales and marketing | 51,224 | 11.1 % | 23,490 | 10.1 % | | Restructuring and other charges | 4,033 | 0.9 % | — | — % | | Total costs and operating expenses | $747,695 | 162.2 % | $492,889 | 211.6 % | | Loss from operations | $(286,612) | (62.2)% | $(259,945) | (111.6)% | | Total non-operating (income) expense, net | (121,403) | (26.3)% | 34,200 | 14.7 % | | Loss before income taxes | (165,209) | (35.8)% | (294,145) | (126.3)% | | Provision for income taxes | 533 | 0.1 % | 242 | 0.1 % | | Net loss | $(165,742) | (35.9)% | $(294,387) | (126.4)% | | Change in foreign currency translation adjustment | 5,686 | 1.2 % | 1,633 | 0.7 % | | Comprehensive loss | $(160,056) | (34.7)% | $(292,754) | (125.7)% | - Revenue increased by 97.9% to $461.1 million in 2022, driven by a 31.3% increase in RevPAR and a 27.6% increase in Live Units, leading to a 78.7% increase in Occupied Nights[314] - Total costs and operating expenses increased by 51.7% to $747.7 million in 2022, primarily due to higher rent expense, cleaning costs, payment processing fees, and employee compensation, all linked to Live Unit growth and increased Occupied Nights[316][317][319][322][324][326] - Net non-operating income was $121.4 million in 2022, a significant improvement from $34.2 million expense in 2021, primarily due to decreases in the fair value of SPAC Warrants and Earn Out Liability, and a gain on conversion of convertible notes[330][332][333][334] - Net loss decreased from $294.4 million in 2021 to $165.7 million in 2022, while comprehensive loss improved from $292.8 million to $160.1 million[312] Non-GAAP Financial Measures - Sonder uses non-GAAP financial measures: Free Cash Flow (FCF), Cash Contribution, and Cash Contribution Margin (CCM) to supplement GAAP financial statements[341][342] Free Cash Flow (FCF) (in thousands) | Metric | 2022 | 2021 | | :------------------------------ | :--------- | :--------- | | Cash used in operating activities | $(149,015) | $(179,391) | | Cash used in investing activities | $(30,993) | $(21,587) | | FCF, including restructuring costs | $(180,008) | $(200,978) | | Cash paid for restructuring costs | 3,712 | — | | FCF, excluding restructuring costs | $(176,296) | $(200,978) | - FCF, excluding restructuring costs, improved by 12.3% year-over-year, primarily due to a $30.4 million decrease in cash used in operating activities, partially offset by a $9.4 million increase in investing activities[346] Cash Contribution and CCM (in thousands) | Metric | 2022 | 2021 | | :-------------------------------- | :------- | :------- | | Cash contribution | $91,566 | $(4,703) | | Revenue | $461,083 | $232,944 | | Cash Contribution Margin (CCM) | 19.9 % | (2.0)% | - CCM improved by 2,188 basis points year-over-year, driven by a $96.3 million increase in cash contribution, which grew at a higher rate than revenue[351] Liquidity and Capital Resources - As of December 31, 2022, Sonder had a cash balance of $246.6 million, primarily for working capital, with a near-term focus on achieving Free Cash Flow positivity[353] - The Business Combination in 2022 increased cash by approximately $401.9 million, net of debt payments and transaction costs[353] - The company incurred an accumulated deficit of $980.6 million at December 31, 2022, and has historically been financed by equity and debt investments[354] - Existing liquidity is believed sufficient for the next 12 months, but future capital requirements may necessitate additional equity or debt financing, which might not be available on acceptable terms[355] - Sonder had $183.2 million in Delayed Draw Notes and $38.8 million in irrevocable standby letters of credit outstanding as of December 31, 2022[358] - The closure of Silicon Valley Bank in March 2023, one of Sonder's lenders, may impact future borrowing requests and letters of credit[357][364] Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2021 | $ Change | | :-------------------------------- | :--------- | :--------- | :--------- | | Net cash used in operating activities | $(149,015) | $(179,391) | $30,376 | | Net cash used in investing activities | $(30,993) | $(21,587) | $(9,406) | | Net cash provided by financing activities | $400,599 | $148,571 | $252,028 | | Effects of foreign exchange on cash | $(1,346) | $(760) | $(586) | | Net change in cash and restricted cash | $219,245 | $(53,167) | $272,412 | - Net cash used in operating activities decreased by $30.4 million year-over-year, primarily due to a lower net loss and the adoption of ASC 2016-02 Leases[361] - Net cash provided by financing activities increased by $252.0 million, mainly from Delayed Draw Notes proceeds and the Business Combination/PIPE offering, partially offset by debt repayments and issuance costs[363] Critical Accounting Estimates - Critical accounting estimates include fair value of share-based awards, useful life of software, bad-debt allowances, valuation of intellectual property, contingent liabilities, deferred tax asset valuation allowance, and complex transaction valuations[438] - Lease accounting under ASC 842 requires significant judgment in determining incremental borrowing rates, which are estimated using synthetic credit rating analysis due to the absence of an agency-based rating[375][410] - Income tax accounting involves evaluating uncertain tax positions and assessing the need for a valuation allowance against deferred tax assets, which is fully established due to a history of losses[380][381] - Stock-based compensation expense for stock options is estimated using the Black-Scholes model, requiring subjective assumptions like expected term, volatility, and risk-free interest rate[383] Recent Accounting Standards - Sonder adopted ASU 2016-02, Leases (Topic 842), effective January 1, 2022, using the modified retrospective approach, recognizing $1.0 billion in operating lease ROU assets and $1.1 billion in operating lease liabilities[486] - The company early adopted ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, effective January 1, 2021, which did not materially impact financial statements[487] - Sonder is currently evaluating the impact of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which defers the effective date for emerging growth companies to fiscal years beginning after December 15, 2022[488] Emerging Growth Company Status - Sonder qualifies as an emerging growth company under the JOBS Act, allowing it to take advantage of reduced reporting requirements and an extended transition period for new accounting standards[386][387] - The company expects to remain an emerging growth company until the earliest of: market value exceeding $700 million, annual gross revenue of $1.235 billion, issuing over $1 billion in non-convertible debt, or December 31, 2026[387] - This status may make financial results difficult to compare with other public companies that are not EGCs or have not chosen the extended transition period[387] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Sonder is exposed to market risks primarily related to foreign currency exchange rates and interest rates. Fluctuations in foreign currencies can impact revenue and operating results, while changes in interest rates affect debt payments and property development financing. The company also faces inflation risk, which could increase operating and capital costs - Sonder's global operations expose it to foreign currency risk, primarily from international revenue, costs, and expenses denominated in foreign currencies[388][389] - The company benefits from a weakening U.S. dollar and is adversely affected by a strengthening U.S. dollar, with fluctuations recorded in other expense, net[390] - Sonder is exposed to interest rate risk related to its outstanding debt, affecting interest earned on cash and interest paid on debt[392] - Recent increases in interest rates have caused and may continue to cause difficulties for property owners/developers in financing projects, potentially delaying new revenue sources[395] - Inflationary pressures, particularly on construction costs, rent escalations, and other material costs, along with supply chain disruptions, could increase operating/capital costs and reduce travel willingness[396] Foreign Currency Exchange Risk - Sonder transacts business in multiple currencies, with the U.S. dollar being the most significant, exposing it to foreign currency exchange rate fluctuations[389] - Foreign currency exchange risks relate to revenue, rent, cleaning fees, balances held as funds receivable/payable, and intercompany balances[393] - Fluctuations in foreign exchange rates are recorded in other expense, net, and increased foreign-currency denominated transactions could amplify their impact[390][391] Interest Rate Risk - Sonder's interest rate risk primarily stems from its outstanding debt, affecting interest earned on cash and paid on debt[392] - A hypothetical 100 basis points change in interest rates would not have a material impact on consolidated financial statements as of December 31, 2022[394] - Rising interest rates could make it difficult for property owners and developers to finance projects, potentially delaying new revenue sources for Sonder[395] Inflation Risk - Elevated inflation levels, driven by global supply and demand imbalances, are impacting Sonder's major markets[396] - Inflationary pressures on construction costs, rent escalations, and other material costs, along with supply chain disruptions, could increase operating and capital costs[396] - These economic variables are beyond Sonder's control and may adversely impact its business, financial condition, results of operations, and cash flows[396] Item 8. Financial Statements and Supplementary Data This section presents Sonder's audited consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and comprehensive notes, along with the independent auditor's report Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP, as the independent registered public accounting firm, issued an unqualified opinion on Sonder's consolidated financial statements for the periods ended December 31, 2022, 2021, and 2020. The report highlights the adoption of FASB ASU No. 2016-02, Leases (ASC 842), effective January 1, 2022, as a change in accounting principle and a critical audit matter due to the complexities and significant estimates involved in lease accounting - Deloitte & Touche LLP provided an unqualified opinion on Sonder's consolidated financial statements for the periods ended December 31, 2022, 2021, and 2020[402] - The company adopted FASB ASU No. 2016-02, Leases (ASC 842), effective January 1, 2022, using the optional transition method[403] - Accounting for leases was identified as a critical audit matter due to complexities in evaluating contractual provisions and significant estimates (e.g., credit rating, credit spread, collateral impact) in determining the incremental borrowing rate[407][411] Consolidated Balance Sheets Sonder's consolidated balance sheets show a significant increase in total assets from $148.5 million in 2021 to $1.57 billion in 2022, primarily driven by the recognition of operating lease right-of-use (ROU) assets. Total liabilities also increased substantially from $344.4 million to $1.59 billion, mainly due to operating lease liabilities. Stockholders' deficit improved from $(764.4) million to $(19.9) million Consolidated Balance Sheets (in thousands) | Assets, Liabilities, and Equity | December 31, 2022 | December 31, 2021 | | :-------------------------------- | :---------------- | :---------------- | | Assets: | | | | Total current assets | $312,930 | $98,981 | | Property and equipment, net | $34,926 | $27,461 | | Operating lease right-of-use ("ROU") assets | $1,209,486 | — | | Other non-current assets | $16,270 | $22,037 | | Total assets | $1,573,612 | $148,479 | | Liabilities: | | | | Total current liabilities | $250,641 | $263,628 | | Non-current operating lease liabilities | $1,166,538 | — | | Deferred rent | — | $66,132 | | Long-term debt, net | $172,950 | $10,736 | | Other non-current liabilities | $3,430 | $3,906 | | Total liabilities | $1,593,559 | $344,402 | | Mezzanine equity: | | | | Total mezzanine equity | — | $568,483 | | Stockholders' deficit: | | | | Total stockholders' deficit | $(19,947) | $(764,406) | | Total liabilities, mezzanine equity, and stockholders' deficit | $1,573,612 | $148,479 | - Total assets increased significantly from $148.5 million in 2021 to $1.57 billion in 2022, primarily due to the recognition of $1.21 billion in operating lease ROU assets upon ASC 842 adoption[415] - Total liabilities rose from $344.4 million in 2021 to $1.59 billion in 2022, largely driven by the recognition of $1.32 billion in operating lease liabilities (current and non-current)[415] - Stockholders' deficit improved from $(764.4) million in 2021 to $(19.9) million in 2022, reflecting changes from the Business Combination and equity conversions[415] Consolidated Statements of Operations and Comprehensive Loss Sonder reported a net loss of $165.7 million in 2022, an improvement from $294.4 million in 2021. Revenue nearly doubled to $461.1 million in 2022. Loss from operations was $286.6 million, while total non-operating income significantly improved to $121.4 million, primarily due to fair value adjustments of SPAC Warrants and Earn Out liability Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------------- | :------- | :------- | :------- | | Revenue | $461,083 | $232,944 | $115,678 | | Total costs and operating expenses | 747,695 | 492,889 | 359,500 | | Loss from operations | $(286,612) | $(259,945) | $(243,822) | | Total non-operating (income) expense, net | (121,403) | 34,200 | 6,171 | | Loss before income taxes | (165,209) | (294,145) | (249,993) | | Provision for income taxes | 533 | 242 | 323 | | Net loss | $(165,742) | $(294,387) | $(250,316) | | Basic net loss per common share | $(0.80) | $(25.02) | $(27.22) | | Diluted net loss per common share | $(0.80) | $(25.02) | $(27.22) | | Comprehensive loss | $(160,056) | $(292,754) | $(251,056) | - Revenue increased by 97.9% from $232.9 million in 2021 to $461.1 million in 2022[418] - Net loss improved from $294.4 million in 2021 to $165.7 million in 2022[418] - Total non-operating (income) expense, net, shifted from an expense of $34.2 million in 2021 to an income of $121.4 million in 2022, driven by fair value adjustments of SPAC Warrants and Earn Out liability[418] Consolidated Statements of Mezzanine Equity and Stockholders' Deficit The consolidated statements reflect the Business Combination on January 18, 2022, where Legacy Sonder was the accounting acquirer. All redeemable convertible preferred stock and exchangeable shares were converted into common stock, reclassified from mezzanine equity to permanent equity. This resulted in a significant increase in additional paid-in capital and a reduction in the accumulated deficit - The Business Combination on January 18, 2022, led to the conversion of all redeemable convertible preferred stock and exchangeable shares into common stock[553][565] - Mezzanine equity, which totaled $568.5 million at December 31, 2021, was eliminated in 2022 due to these conversions[415] - Additional paid-in capital increased substantially from $43.1 million in 2021 to $947.6 million in 2022[415] - Accumulated deficit decreased from $814.8 million in 2021 to $980.6 million in 2022[415] Consolidated Statements of Cash Flows Sonder's net cash used in operating activities decreased by $30.4 million to $149.0 million in 2022, primarily due to a lower net loss and the adoption of ASC 2016-02. Net cash provided by financing activities significantly increased to $400.6 million, driven by proceeds from Delayed Draw Notes and the Business Combination/PIPE offering. This resulted in a net increase in cash and restricted cash of $219.2 million in 2022 Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :-------------------------------- | :--------- | :--------- | :--------- | | Net cash used in operating activities | $(149,015) | $(179,391) | $(202,502) | | Net cash used in investing activities | $(30,993) | $(21,587) | $(14,850) | | Net cash provided by financing activities | $400,599 | $148,571 | $226,561 | | Effects of foreign exchange on cash | $(1,346) | $(760) | $(347) | | Net change in cash and restricted cash | $219,245 | $(53,167) | $8,862 | | Cash and restricted cash at end of year | $289,186 | $69,941 | $123,108 | - Net cash used in operating activities decreased by $30.4 million year-over-year, primarily du