Sonder(US:SOND)2023-05-10 20:07PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion for Q1 2023 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Sonder Holdings Inc. for Q1 2023 Condensed Consolidated Balance Sheets Total assets decreased, driven by reduced cash, while liabilities increased, expanding the stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $217,968 | $246,624 | | Total current assets | $271,230 | $312,930 | | Operating lease ROU assets | $1,201,007 | $1,209,486 | | Total assets | $1,521,460 | $1,573,612 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $279,666 | $250,641 | | Non-current operating lease liabilities | $1,156,913 | $1,166,538 | | Total liabilities | $1,618,287 | $1,593,559 | | Total stockholders' deficit | ($96,827) | ($19,947) | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income Revenue increased 50% to $120.7 million, but a net loss of $86.4 million was reported due to fair value adjustments Statement of Operations Highlights (in thousands) | Income Statement Item | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $120,738 | $80,466 | | Total costs and operating expenses | $205,481 | $176,230 | | Loss from operations | ($84,743) | ($95,764) | | Net (loss) income | ($86,431) | $10,963 | | Basic net (loss) income per common share | ($0.39) | $0.05 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved, but overall cash decreased by $42.8 million during the quarter Cash Flow Highlights (in thousands) | Cash Flow Item | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($35,492) | ($50,693) | | Net cash used in investing activities | ($7,478) | ($11,616) | | Net cash provided by financing activities | $8 | $399,726 | | Net change in cash, cash equivalents, and restricted cash | ($42,782) | $337,090 | Notes to the Condensed Consolidated Financial Statements These notes detail accounting policies, revenue recognition, fair value measurements, debt, leases, equity, and restructuring Disaggregated Revenue (in thousands) | Revenue Source | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Direct revenue | $58,339 | $31,934 | | Indirect revenue | $62,399 | $48,532 | | Total revenue | $120,738 | $80,466 | - In March 2023, the company announced a restructuring affecting approximately 14.0% of its corporate workforce, incurring $2.1 million in one-time costs142 - The company is involved in litigation with a landlord at the Broad Street Property in New York over Legionella bacteria contamination, with the landlord seeking at least $3.9 million in damages. The company has accrued $6.8 million for legal contingencies as of March 31, 2023125126 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance, strategic initiatives, and financial condition, including the 'Cash Flow Positive Plan' and non-GAAP measures Key Business Metrics Key performance metrics showed strong year-over-year growth, with Live Units up 35.1% and RevPAR increasing 14.5% Key Metrics Comparison | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Live Units (End of Period) | 10,400 | 7,700 | 35.1% | | Bookable Nights | 898,000 | 689,000 | 30.3% | | RevPAR | $134 | $117 | 14.5% | | ADR | $167 | $160 | 4.4% | | Occupancy Rate | 80.4% | 73.1% | 10.0% | Results of Operations Revenue increased 50% to $120.7 million, while operating expenses grew slower, reducing the operating loss to $84.7 million - Revenue increased by $40.3 million (50.0%) YoY, primarily due to a 14.5% increase in RevPAR and a 35.1% increase in Live Units177 - Cost of revenue increased by 24.5% YoY, a slower pace than revenue growth, driven by higher rent and cleaning expenses from the increased number of Live Units179180 - General and administrative expenses decreased by 11.5% YoY, mainly due to lower non-recurring legal and professional fees related to becoming a public company in 2022179184 - Sales and marketing expenses increased by 67.4% YoY, driven by higher channel transaction fees from increased bookings through OTAs179189 Non-GAAP Financial Measures Non-GAAP measures show improved Free Cash Flow to -$41.4 million, while Cash Contribution Margin slightly declined to 12.5% Free Cash Flow (FCF) Reconciliation (in thousands) | FCF Component | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Cash used in operating activities | ($35,492) | ($50,693) | | Cash used in investing activities | ($7,478) | ($11,616) | | FCF, excluding restructuring costs | ($41,373) | ($62,309) | Cash Contribution Margin (CCM) Calculation | CCM Component | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Cash contribution (in thousands) | $15,037 | $10,413 | | Revenue (in thousands) | $120,738 | $80,466 | | CCM | 12.5% | 12.9% | Liquidity and Capital Resources The company had $218.0 million in cash, deemed sufficient for 12 months, with significant debt and lease obligations - The company had a cash balance of $218.0 million (excluding restricted cash) as of March 31, 2023213 - Management believes existing cash is sufficient to fund operations for at least the next 12 months, citing reduced cash burn215 - As of March 31, 2023, the company had off-balance sheet arrangements including $37.8 million in outstanding surety bonds and $40.7 million in irrevocable standby letters of credit225227 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk were reported since the last annual report - There have been no material changes in market risk since the last annual report234 Item 4. Controls and Procedures Disclosure controls and procedures were not effective due to material weaknesses in lease accounting and the control environment - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023236 - A material weakness related to the process of capturing and recording lease agreements timely and accurately persists due to inadequate resources with the necessary technical expertise238 - A broader material weakness exists in the overall control environment, including deficiencies in formal policies and procedures and insufficient personnel to support internal control objectives239 PART II - OTHER INFORMATION This section provides information on legal proceedings, risk factors, and other disclosures not covered in financial statements Item 1. Legal Proceedings The company is involved in a legal dispute with a landlord over alleged Legionella contamination, with damages sought - Sonder is in a legal dispute with the landlord of the Broad Street Property in New York regarding Legionella bacteria contamination. The landlord seeks no less than $3.9 million in damages, and Sonder has filed counterclaims246 Item 1A. Risk Factors This section details significant risks including failure to achieve positive free cash flow, regulatory challenges, and stock price volatility Risks Related to Our Business and Industry Risks include failure to achieve positive FCF, sensitivity to economic downturns, competition, and data security breaches - The company's 'Cash Flow Positive Plan' may not succeed in achieving positive FCF without additional fundraising, and restructuring efforts could adversely affect the business253 - The business is highly sensitive to trends in travel, hospitality, and real estate markets, as well as general economic conditions like inflation and recession, which could materially affect revenue and operating results257 - The company has a history of net losses, with an accumulated deficit of $1.1 billion as of March 31, 2023, and may not achieve or maintain profitability in the future270 - A security incident in November 2022 involved unauthorized access to a cloud-hosted account containing guest data, highlighting risks related to data processing and security breaches356 Risks Related to Government Regulation Risks include evolving short-term rental laws, data privacy compliance costs, and public company regulatory burdens - The company is subject to evolving short-term rental regulations in various jurisdictions, which could limit operations, increase compliance costs, or require changes to the business model399400 - Compliance with numerous data privacy laws (e.g., EU/UK GDPR, CCPA/CPRA) is complex and costly. Failure to comply could result in significant fines, litigation, and reputational harm409410411 - As a public company, Sonder incurs substantial legal, accounting, and other compliance costs, and its management team has limited experience managing a public company, which could divert attention from core business operations405406 Risks Related to Indebtedness and Liquidity Risks include the need for additional capital and restrictive covenants in existing debt agreements limiting flexibility - The company may require additional capital to support growth, and if it cannot be secured on favorable terms, its ability to execute its business plan could be limited422 - As of March 31, 2023, the company had $189.6 million in debt. The debt agreements contain financial covenants (e.g., minimum EBITDA, minimum liquidity) and other restrictions that may limit operational flexibility423424 Risks Related to Ownership of Our Securities Risks include potential Nasdaq delisting due to low bid price, stock price volatility, and warrant expiration - On April 21, 2023, Sonder received a notice from Nasdaq for non-compliance with the minimum $1.00 bid price rule. Failure to regain compliance by October 18, 2023, could lead to delisting426427 - The market price of the company's common stock and warrants is volatile and could decline significantly due to various factors, including performance, analyst reports, and market conditions432 - The public warrants have an exercise price of $11.50 per share and may expire worthless if the stock price does not exceed this level438 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None446 Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None447 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable448 Item 5. Other Information No other material information was reported for the period - None449 Item 6. Exhibits This section lists exhibits filed with the quarterly report, including management contracts and certifications