Sonder(SOND) - 2022 Q2 - Quarterly Report

FORM 10-Q Filing Information This section provides key details about the Form 10-Q filing, including registrant information, filing period, and filer status - Registrant: Sonder Holdings Inc., based in San Francisco, California[2] - Filing Period: Quarterly report for the period ended June 30, 2022[2] | Filer Status | | | | | :--- | :--- | :--- | :--- | | Large accelerated filer | ☐ | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | Smaller reporting company | ☐ | | | | Emerging growth company | ☒ | Special Note Regarding Forward-Looking Statements This section highlights the presence of forward-looking statements, their nature, and the inherent risks and uncertainties involved - The report contains forward-looking statements concerning future events or financial/operating performance, identifiable by words like 'may,' 'will,' 'expects,' 'plans,' 'anticipates,' 'believes,' 'estimates,' and 'potential'[8] - Key forward-looking statements include plans to achieve positive quarterly Free Cash Flow within 2023, financial forecasts, expectations for business, revenue, expenses, profitability, and trends in travel and hospitality industries[10] - Readers are cautioned not to rely on these statements as predictions of future events, as outcomes are subject to risks and uncertainties detailed in the 'Risk Factors' section[10] Summary of Risk Factors This section summarizes key risks that could cause actual results to differ from expectations, including financial and market challenges - Actual results may differ materially from forecasts and projections[17] - The plan to reach positive quarterly Free Cash Flow within 2023 without additional fundraising may be unsuccessful, and restructuring initiatives might not yield expected benefits[17] - Business results could be negatively affected by changes in travel, hospitality, real estate, and vacation markets, as well as the inability to negotiate satisfactory leases or onboard new properties timely[17] Part I - Financial Information This part presents the company's unaudited condensed consolidated financial statements for the quarter ended June 30, 2022, along with management's discussion and analysis of financial condition and results of operations, disclosures about market risk, and controls and procedures Item 1. Financial Statements This item includes the unaudited condensed consolidated financial statements, comprising the balance sheets, statements of operations and comprehensive loss, statements of mezzanine equity and stockholders' equity (deficit), and statements of cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets The condensed consolidated balance sheets provide a snapshot of the company's assets, liabilities, and equity as of June 30, 2022, compared to December 31, 2021, highlighting significant changes in cash, operating lease assets/liabilities, and equity due to the Business Combination | | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash | $359,500 | $69,726 | | Total current assets | $399,217 | $98,981 | | Property and equipment, net | $35,605 | $27,461 | | Operating lease right-of-use assets | $1,109,208 | $— | | Other non-current assets | $15,384 | $22,037 | | Total assets | $1,559,414 | $148,479 | | Liabilities, mezzanine equity and stockholders' equity (deficit) | | | | Total current liabilities | $243,549 | $263,628 | | Non-current operating lease liabilities | $1,050,285 | $— | | Deferred rent | $— | $66,132 | | Long-term debt, net | $161,285 | $10,736 | | Other non-current liabilities | $2,033 | $3,906 | | Total liabilities | $1,457,152 | $344,402 | | Total mezzanine equity | $— | $568,483 | | Total stockholders' equity (deficit) | $102,262 | $(764,406) | | Total liabilities, mezzanine equity and stockholders' equity (deficit) | $1,559,414 | $148,479 | - Cash significantly increased from $69.7 million at December 31, 2021, to $359.5 million at June 30, 2022, primarily due to the Business Combination and Delayed Draw Notes[22] - Operating lease right-of-use assets and corresponding liabilities were recognized as of June 30, 2022, totaling $1.1 billion and $1.2 billion (current and non-current), respectively, following the adoption of Topic 842[22] Condensed Consolidated Statements of Operations and Comprehensive Loss The condensed consolidated statements of operations and comprehensive loss present the company's financial performance for the three and six months ended June 30, 2022, compared to the same periods in 2021, showing significant revenue growth but continued net losses | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 (in thousands) | 2021 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | Revenue | $121,322 | $47,269 | $201,788 | $78,827 | | Cost of revenue (excluding depreciation and amortization) | $79,187 | $43,745 | $153,083 | $82,950 | | Operations and support | $54,003 | $34,889 | $102,270 | $60,312 | | General and administrative | $31,277 | $24,615 | $68,258 | $56,764 | | Research and development | $8,088 | $4,066 | $15,713 | $7,385 | | Sales and marketing | $12,414 | $4,888 | $21,875 | $7,399 | | Restructuring and other charges | $4,033 | $— | $4,033 | $— | | Total costs and expenses | $189,002 | $112,203 | $365,232 | $214,810 | | Loss from operations | $(67,680) | $(64,934) | $(163,444) | $(135,983) | | Total interest expense, net and other expense (income), net | $(24,022) | $8,945 | $(142,209) | $16,414 | | Loss before income taxes | $(43,658) | $(73,879) | $(21,235) | $(152,397) | | Provision for income taxes | $117 | $70 | $148 | $93 | | Net loss | $(43,775) | $(73,949) | $(21,383) | $(152,490) | | Net loss per share, basic and diluted | $(0.20) | $(6.41) | $(0.10) | $(13.74) | - Revenue increased by 156.7% to $121.3 million for the three months ended June 30, 2022, and by 156.0% to $201.8 million for the six months ended June 30, 2022, compared to the prior year periods[23] - Net loss decreased significantly for both periods, from $(73.9) million to $(43.8) million for the three months, and from $(152.5) million to $(21.4) million for the six months, primarily due to fair value adjustments of SPAC Warrants and Earn Out liability[23] Condensed Consolidated Statements of Mezzanine Equity and Stockholders' Equity (Deficit) This section details the changes in mezzanine equity and stockholders' equity (deficit) for the three and six months ended June 30, 2022 and 2021, reflecting the impact of the Business Combination, stock-based compensation, and net losses - As of June 30, 2022, total stockholders' equity (deficit) improved to $102.3 million from $(764.4) million at December 31, 2021, largely due to the Business Combination converting preferred stock and exchangeable shares into common stock[25][30] - The Business Combination on January 18, 2022, resulted in the conversion of all redeemable convertible preferred stock and exchangeable shares into common stock, reclassifying them from mezzanine equity to permanent equity[25][30] - Stock-based compensation expense for the three and six months ended June 30, 2022, was $5.1 million and $11.7 million, respectively[25][30] Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows present the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021, showing a substantial increase in cash from financing activities in 2022 | Cash Flow Activity | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(91,615) | $(96,253) | | Net cash used in investing activities | $(18,381) | $(6,900) | | Net cash provided by financing activities | $400,300 | $158,729 | | Effects of foreign exchange on cash | $499 | $(258) | | Net change in cash and restricted cash | $290,803 | $55,318 | - Net cash provided by financing activities increased significantly to $400.3 million in the first six months of 2022, primarily due to proceeds from the Business Combination and PIPE offering ($325.9 million) and Delayed Draw Notes ($159.2 million)[37] - Net cash used in operating activities remained substantial at $(91.6) million for the six months ended June 30, 2022, similar to $(96.3) million in the prior year, reflecting ongoing operational losses[36] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the figures presented in the condensed consolidated financial statements, covering business description, accounting policies, revenue recognition, fair value measurements, debt, leases, warrants, commitments, equity, and related party transactions Note 1. Description of Business This note describes Sonder Holdings Inc. as a provider of short and long-term accommodations, headquartered in San Francisco, California, and details the consummation of its business combination with Gores Metropoulos II, Inc. on January 18, 2022 - Sonder provides short and long-term accommodations in North America, Europe, and the Middle East, with units selected, designed, and managed directly by the company[39] - The company consummated a Business Combination with Gores Metropoulos II, Inc. on January 18, 2022, becoming a publicly traded entity[41] Note 2. Summary of Significant Accounting Policies This note outlines the basis of presentation, principles of consolidation, impact of the COVID-19 pandemic, use of estimates, and recently adopted and issued accounting pronouncements, including the adoption of ASC 842 for leases - The condensed consolidated financial statements are prepared in conformity with U.S. GAAP and include Sonder Holdings Inc., its wholly-owned subsidiaries, and one variable interest entity (VIE)[42] - The COVID-19 pandemic materially adversely affected financial results in 2021 and H1 2022, with uncertain recovery[45][46] - Sonder adopted ASC 842 (Leases) on January 1, 2022, resulting in the recognition of $1.1 billion in Operating lease right-of-use assets and $1.2 billion in lease liabilities[49] Note 3. Revenue This note details Sonder's revenue recognition policy, primarily from short-term and month-to-month accommodations, and disaggregates total revenue between direct and indirect channels for the reported periods - Revenue is generated from direct bookings (Sonder.com, Sonder app) and indirect bookings (third-party OTAs), recognized on a straight-line basis over the guest stay[53] | Revenue Source | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Direct revenue | $42,843 | $23,924 | $74,777 | $44,005 | | Indirect revenue | $78,479 | $23,345 | $127,011 | $34,822 | | Total revenue | $121,322 | $47,269 | $201,788 | $78,827 | - Indirect revenue channels accounted for a larger portion of total revenue in 2022, with three third-party corporate and OTAs representing over 34%, 18%, and 12% of net accounts receivable at June 30, 2022[54][55] Note 4. Fair value measurement and financial instruments This note explains the fair value hierarchy used for financial instruments and details the valuation of liabilities measured at fair value on a recurring basis, including SPAC Warrants and Earn Out liability, and their changes over the periods - Sonder uses a three-level Fair value hierarchy (Level 1: unadjusted quoted prices, Level 2: observable inputs, Level 3: unobservable inputs) for financial instruments[56][57] - As of June 30, 2022, the Earn Out liability ($1.6 million, Level 2) and SPAC Warrants liability (Public Warrants $0.27 million, Private Placement Warrants $0.165 million, both Level 3) were recorded in other non-current liabilities[69] | | June 30, 2022 (in thousands) | | :--- | :--- | | Level 2 Liabilities: | | | Earn Out liability | $1,595 | | Level 3 Liabilities: | | | Public Warrants | $270 | | Private Placement Warrants | $165 | | Total financial liabilities measured and recorded at fair value | $2,030 | Note 5. Debt This note provides details on the company's debt instruments, including the Delayed Draw Notes, the conversion of 2021 Convertible Promissory Notes, the repayment of the 2018 Loan and Security Agreement, and the status of its credit facilities - In January 2022, Sonder drew down $165 million in Delayed Draw Notes, with a five-year maturity and interest at SOFR + 0.26% (floor 1%) + 9.0%[75][78] - The 2021 Convertible Promissory Notes, totaling $165.0 million, were automatically converted into 19,017,105 shares of common stock in January 2022 upon the Business Combination, resulting in a $29.5 million gain on conversion[82][84] - The 2018 Loan and Security Agreement was paid down by $24.5 million in January 2022, incurring $2.5 million in debt extinguishment costs[86] - As of June 30, 2022, Sonder was in compliance with all financial covenants for its 2020 Credit Facility (no borrowings outstanding, $32.0 million in letters of credit) and 2020 Québec Credit Facility (no borrowings)[91][92] Note 6. Leases This note details the adoption of ASC 842 for leases, its material impact on the balance sheet by recognizing ROU assets and lease liabilities, and provides supplemental information on lease costs, weighted-average terms, discount rates, and future lease obligations - Sonder adopted Topic 842 on January 1, 2022, using the modified retrospective approach, resulting in $1.1 billion in ROU assets and $1.2 billion in lease liabilities[95][98] | Lease Metric | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Operating lease cost | $65,876 | $128,823 | | Short-term lease cost | $477 | $479 | | Variable lease cost | $944 | $1,587 | | Total operating lease cost | $67,297 | $130,889 | - As of June 30, 2022, the weighted average remaining lease term was 7.4 years, and the weighted average discount rate was 9.4%[100] - Future lease payments for leases not yet commenced total $1.9 billion, with terms of one to 17 years, commencing between 2022 and 2026[103] Note 7. Preferred and Common Stock Warrants This note describes the status and accounting treatment of preferred and common stock warrants, including their conversion to equity or classification as liabilities, following the Business Combination - Upon the Business Combination in January 2022, Series A and B preferred stock warrants converted into 150,092 common shares, while Series C and D warrants converted into common stock warrants and were reclassified to equity ($2.0 million)[106][107] - Delayed Draw Warrants (2,475,000 shares at $12.50 exercise price) were issued in January 2022 and are equity-classified, valued at $5.6 million[108][110] - Public Warrants (9,000,000) and Private Placement Warrants (5,500,000) are liability-classified, with fair values decreasing significantly from January 18, 2022, to June 30, 2022, due to stock price decrease[111][112][113][114] Note 8. Commitments and Contingencies This note outlines the company's commitments, including surety bonds, and discusses ongoing legal and regulatory matters, specifically a lawsuit related to Legionella bacteria contamination at the Broad Street Property - Sonder has $67.3 million in commitments from surety providers, with $33.4 million outstanding as of June 30, 2022[115] - The company is involved in a lawsuit with the Broad Street Landlord over Legionella contamination, with Sonder withholding rent and filing counterclaims for significant damages[118] - An estimated accrual of $3.4 million for loss contingencies related to legal matters was recorded as of June 30, 2022[119] Note 9. Guarantees and Indemnification This note describes the indemnification agreements with directors and the standard indemnification provisions in commercial agreements, noting no material costs incurred to date - Sonder has indemnification agreements with all directors, requiring indemnification to the fullest extent permitted by Delaware law, with no material demands made to date[120] - Limited indemnification provisions are included in commercial agreements for breaches or intellectual property infringement claims, with no material costs incurred to date[121] Note 10. Exchangeable shares and redeemable convertible preferred stock This note details the conversion of Exchangeable Shares and Redeemable Convertible Preferred Stock into common stock upon the Business Combination, impacting the company's equity structure - Upon the Business Combination, all Legacy Sonder Canada Exchangeable Common Shares were exchanged into 28,037,196 Post-Combination Exchangeable Common Shares, with a net carrying value of $43.2 million[123] - All redeemable convertible preferred stock (75,767,082 shares) were automatically converted into 111,271,424 post-combination Sonder common stock for a value of $518.8 million upon the Business Combination[126] Note 11. Common Stock This note explains the impact of the Business Combination on common stock, including the retroactive adjustment of share figures, the authorized share capital, and the shares reserved for future issuance under various plans - The Business Combination on January 18, 2022, resulted in Legacy Sonder being the accounting acquirer, with prior period share activity retroactively adjusted using a 1.4686 recapitalization exchange ratio[127] - Sonder's amended certificate of incorporation authorizes 690,000,000 shares, including 440,000,000 General Common Stock and 250,000,000 Preferred Stock[129] | Shares Reserved for Future Issuance (as of June 30, 2022) | Amount | | :--- | :--- | | Conversion of exchangeable shares | 40,000,000 | | Outstanding stock options | 29,235,358 | | Outstanding restricted stock units (RSUs) | 9,889,782 | | Outstanding market stock units (MSUs) | 14,499,972 | | Shares issuable pursuant to Earn Out liability | 14,500,000 | | Shares available for grant under the ESPP | 6,564,031 | | Shares available for grant under the 2021 Equity Incentive Plan | 19,515,277 | | Total common stock reserved for future issuance | 151,179,386 | Note 12. Stockholders' Equity (Deficit) This note details the company's equity incentive plans, including the Legacy, 2021 Management, 2021 Equity, and ESPP plans, and provides information on stock-based compensation expense, stock options, and performance/market-based equity awards - Total stock-based compensation expense for the three and six months ended June 30, 2022, was $5.1 million and $11.7 million, respectively[140] - The 2021 Management Equity Incentive Plan allows for awards covering up to 14,500,000 additional common shares upon achieving certain benchmark share prices (Triggering Events)[135] - In May 2022, 14,499,972 Market Stock Units (MSUs) were issued to key executives, with a total grant-date fair value of $4.2 million, vesting upon stock price targets within five years[156][157] Note 13. Net Loss Per Common Share This note presents the computation of basic and diluted net loss per common share, with retrospective adjustments for the Business Combination, and lists potential common shares excluded from diluted EPS due to their anti-dilutive effect | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 (in thousands) | 2021 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | Net loss attributable to common stockholders | $(43,775) | $(73,949) | $(20,203) | $(152,490) | | Basic weighted-average common shares outstanding | 215,085,516 | 11,538,790 | 197,658,542 | 11,099,760 | | Basic net loss per share | $(0.20) | $(6.41) | $(0.10) | $(13.74) | - Potential common shares totaling 73.9 million (including options, RSUs, MSUs, and exchangeable shares) were excluded from diluted EPS calculation as of June 30, 2022, because their inclusion would be anti-dilutive[159] Note 14. Income Taxes This note provides the provision for income taxes and effective tax rates for the reported periods, explaining that the difference from the U.S. statutory rate is primarily due to a full valuation allowance against net deferred tax assets | Period | Provision for Income Taxes (in thousands) | Effective Tax Rate | | :--- | :--- | :--- | | Three Months Ended June 30, 2022 | $117 | 0.3% | | Six Months Ended June 30, 2022 | $148 | 0.7% | | Three Months Ended June 30, 2021 | $70 | 0.1% | | Six Months Ended June 30, 2021 | $93 | 0.1% | - The effective tax rate differs from the U.S. statutory rate of 21% primarily due to a full valuation allowance related to net deferred tax assets, given the company's history of losses[160] Note 15. Related party transactions This note discloses related party transactions, specifically the repayment of a promissory note from CEO Francis Davidson and the conversion of 2021 Convertible Promissory Notes held by certain investors - CEO Francis Davidson's $24.6 million promissory note (including $1.1 million interest) was repaid in full prior to the Business Combination by selling 1,855,938 shares of Legacy Sonder's common stock back to the company[161][162] - Sonder's investors and their affiliates held $43.3 million of the 2021 Convertible Promissory Notes, which automatically converted into common stock before the Business Combination[163] Note 16. Business Combination This note provides comprehensive details of the Business Combination with GMII on January 18, 2022, including the merger structure, consideration paid to Legacy Sonder securityholders, accounting treatment as a reverse recapitalization, and the impact of PIPE investments - The Business Combination with GMII was consummated on January 18, 2022, with Legacy Sonder being the accounting acquirer (reverse recapitalization)[164][172] - Legacy Sonder securityholders received approximately 190.2 million shares of GMII's common stock as aggregate merger consideration (excluding Earn Out shares)[166] - The Business Combination and PIPE investments increased cash by approximately $401.9 million, net of debt paydown and transaction costs[172][175] Note 17. Restructuring Activities This note details the restructuring activities undertaken as part of the Cash Flow Positive Plan announced on June 9, 2022, which included a significant reduction in corporate and frontline roles and associated one-time charges - On June 9, 2022, Sonder announced its Cash Flow Positive Plan, including a restructuring that reduced corporate roles by 21% and frontline roles by 7%[176] - Total restructuring and other charges of $4.0 million were incurred in the three months ended June 30, 2022, with $2.4 million paid in Q2 2022[176] Note 18. Subsequent Events This note discloses a subsequent event regarding the company's intention to implement an option exchange program for eligible employees, subject to Board approval and further details in a Schedule TO filing - On August 10, 2022, Sonder announced its intention to implement an option exchange program for eligible employees, allowing them to exchange outstanding options for new options at fair market value[177] - The program's criteria and terms are pending final Board approval and will be detailed in a tender offer statement on Schedule TO filing[178] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, key business metrics, non-GAAP financial measures, and critical accounting policies, offering insights into performance drivers and future outlook Overview This overview reiterates Sonder's mission to revolutionize hospitality through design and technology, highlighting its end-to-end model, diverse product portfolio of approximately 18,700 Live and Contracted Units across 41 cities, and proprietary technology for operations and guest experience - Sonder's mission is to revolutionize hospitality through design and technology, offering short and long-term accommodations[181] - As of June 30, 2022, Sonder operates approximately 18,700 Live and Contracted Units across 41 cities in 10 countries, utilizing proprietary technology for management and guest services[181][182] Management Discussion Regarding Opportunities, Challenges and Risks This section discusses key drivers and challenges, including the company's supply growth strategy shift towards capital-light leases, efforts to attract and retain guests through direct bookings, continuous investment in technology, and the financial implications of becoming a public company post-Business Combination - Sonder pivoted its supply growth strategy in Q2 2022 to slow new unit signings and focus on converting already contracted units, aiming for 'capital light' lease signings as part of its Cash Flow Positive Plan[185] - Direct bookings as a percentage of booked revenue were 43% for the three months ended June 30, 2022, with expectations to remain at current levels or decrease moderately[187][188] - Significant resources are invested in proprietary technology for both guest experience ('lobby on your phone') and internal operations (underwriting, booking engine, pricing software)[189][190] - Becoming a public company post-Business Combination (January 18, 2022) increased cash by $401.9 million but also introduced additional annual expenses for regulatory compliance and public company practices[193][194] Sonder's Business Model This section outlines Sonder's business model, which involves leasing properties under multi-year contracts (Fixed Lease, Mixed Lease, Revenue Share) and generating revenue from guest stays. It emphasizes the shift towards 'capital light' lease signings under the Cash Flow Positive Plan - Sonder secures properties through multi-year contracts with real estate owners, primarily Fixed Lease, Mixed Lease, Revenue Share agreements[196][202] - Revenue is generated nightly from guest bookings via Sonder.com, the Sonder app, or OTA partners[198] - Under the Cash Flow Positive Plan, Sonder aims to sign only 100% 'capital light' units, reducing upfront capital investment[197] Restructuring This section details the restructuring efforts initiated on June 9, 2022, as part of the Cash Flow Positive Plan, which involved a 21% reduction in corporate roles and a 7% reduction in frontline roles, incurring $4.0 million in one-time charges - On June 9, 2022, Sonder announced a Cash Flow Positive Plan to achieve positive quarterly free cash flow by 2023[199] - The restructuring resulted in an approximate 21% reduction of corporate roles and 7% reduction of frontline roles[199] - One-time restructuring costs of $4.0 million were incurred as of June 30, 2022, with $2.4 million paid in Q2 2022[199] Key Business Metrics and Non-GAAP Financial Measures This section presents key operational metrics and non-GAAP financial measures used to evaluate performance, including Live Units, Bookable Nights, Occupied Nights, RevPAR, ADR, Occupancy Rate, Property Level Profit (Loss), and Adjusted EBITDA, along with their definitions and period-over-period changes | Metric | June 30, 2022 | June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Live Units (End of Period) | 8,400 | 5,500 | 53% | | Bookable Nights (3 months) | 725,000 | 473,000 | 53% | | Occupied Nights (3 months) | 598,000 | 321,000 | 86% | | Total Portfolio | 18,700 | 14,800 | 26% | | RevPAR (3 months) | $167 | $100 | 67% | | ADR (3 months) | $203 | $147 | 38% | | Occupancy Rate (3 months) | 82% | 68% | 14% | - Live Units increased by 53% year-over-year to 8,400, driving a 53% increase in Bookable Nights and an 86% increase in Occupied Nights for the three months ended June 30, 2022[204][207][208] - RevPAR increased by 67% to $167 for the three months ended June 30, 2022, driven by a 38% ADR increase and a 14 percentage point increase in Occupancy Rate, reflecting robust travel recovery and a strategy shift to higher occupancy[212] | Non-GAAP Measure | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 (in thousands) | 2021 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | Property Level Profit (Loss) | $7,786 | $(12,836) | $(14,562) | $(31,996) | | Property Level Profit (Loss) Margin | 6.4% | -27.2% | -7.2% | -40.6% | | Adjusted EBITDA | $(52,597) | $(58,273) | $(136,051) | $(111,050) | - Property Level Profit (PLP) improved to $7.8 million (6.4% margin) for Q2 2022 from a loss of $12.8 million (-27.2% margin) in Q2 2021, driven by increased revenue and Live Units[224] - Adjusted EBITDA loss decreased by 9.7% to $(52.6) million for Q2 2022, but increased by 22.5% to $(136.1) million for H1 2022, primarily due to increased Cost of revenue and operating expenses, partially offset by revenue growth[232][233] Components of Results of Operations This section defines the various components of the company's results of operations, including revenue, cost of revenue, operations and support, general and administrative, research and development, sales and marketing, restructuring charges, interest expense, and income taxes, explaining what each category entails - Revenue is derived from guest accommodations, net of discounts and refunds, booked directly or through third-party OTAs, recognized over the length of stay[239][240] - Cost of revenue includes fixed and variable costs like rental payments, cleaning, and payment processing charges, expected to increase with bookings and portfolio expansion[241] - Operating expenses (Operations and Support, General and Administrative, Research and Development, Sales and Marketing) are detailed, with expectations for increases due to growth, headcount, and public company costs[242][243][244][245] - Restructuring and other charges primarily consist of employee termination benefits from the Cash Flow Positive Plan[246] Results of Operations - Three Months Ended June 30, 2022 and 2021 This section provides a detailed comparative analysis of the company's financial performance for the three months ended June 30, 2022, versus 2021, highlighting significant revenue growth, changes in costs and expenses, and the impact of fair value adjustments on net loss | | Three Months Ended June 30, | Change | | :--- | :--- | :--- | | | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | Revenue | $121,322 | $47,269 | $74,053 | 156.7% | | Cost of revenue (excl. D&A) | $79,187 | $43,745 | $35,442 | 81.0% | | Operations and support | $54,003 | $34,889 | $19,114 | 54.8% | | General and administrative | $31,277 | $24,615 | $6,662 | 27.1% | | Research and development | $8,088 | $4,066 | $4,022 | 98.9% | | Sales and marketing | $12,414 | $4,888 | $7,526 | 154.0% | | Restructuring and other charges | $4,033 | $— | $4,033 | n.m | | Total costs and expenses | $189,002 | $112,203 | $76,799 | 68.4% | | Net loss | $(43,775) | $(73,949) | $30,174 | (40.8)% | - Revenue increased by 156.7% due to a 67.0% increase in RevPAR (driven by travel recovery and higher occupancy strategy) and 52.7% Live Unit growth[252] - Total costs and expenses increased by 68.4% to $189.0 million, primarily driven by increased rent expense ($26.2 million), employee compensation ($7.2 million in operations & support, $5.7 million in G&A), and channel transaction fees ($6.5 million)[254][255][256][257][258][259] - Net loss decreased by 40.8% to $(43.8) million, significantly impacted by positive fair value adjustments of SPAC Warrants ($11.3 million) and Earn Out liability ($23.3 million)[251][262] Results of Operations - Six Months Ended June 30, 2022 and 2021 This section provides a detailed comparative analysis of the company's financial performance for the six months ended June 30, 2022, versus 2021, showing substantial revenue growth, increased operating expenses, and a significant reduction in net loss due to fair value adjustments | | Six Months Ended June 30, | Change | | :--- | :--- | :--- | | | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | Revenue | $201,788 | $78,827 | $122,961 | 156.0% | | Cost of revenue (excl. D&A) | $153,083 | $82,950 | $70,133 | 84.5% | | Operations and support | $102,270 | $60,312 | $41,958 | 69.6% | | General and administrative | $68,258 | $56,764 | $11,494 | 20.2% | | Research and development | $15,713 | $7,385 | $8,328 | 112.8% | | Sales and marketing | $21,875 | $7,399 | $14,476 | 195.6% | | Restructuring and other charges | $4,033 | $— | $4,033 | n.m | | Total costs and expenses | $365,232 | $214,810 | $150,422 | 70.0% | | Net loss | $(21,383) | $(152,490) | $131,107 | (86.0)% | - Revenue increased by 156.0% due to a 60.3% increase in RevPAR (travel recovery and higher occupancy strategy) and 52.7% Live Unit growth[265] - Total costs and expenses increased by 70.0% to $365.2 million, driven by increased rent expense ($53.9 million), employee compensation ($15.6 million in operations & support), and channel transaction fees ($11.7 million)[266][267][268][269][270][272] - Net loss significantly decreased by 86.0% to $(21.4) million, primarily due to positive fair value adjustments of SPAC Warrants ($37.6 million), Earn Out liability ($96.5 million), and share-settled redemption feature ($29.5 million)[264][275] Liquidity and Capital Resources This section discusses the company's liquidity position, primarily cash of $359.5 million, and its goal to achieve cash flow positivity. It details cash flow activities from operations, investing, and financing, and outlines off-balance sheet arrangements and contractual obligations - As of June 30, 2022, principal liquidity was $359.5 million in cash, with a primary focus on reaching cash flow positivity within 2023[278] - The Business Combination increased cash by approximately $401.9 million, net of debt paydown and transaction costs[279] - Cumulative losses since inception reached $836.2 million as of June 30, 2022, with operations financed by equity investments, Convertible Notes, and Delayed Draw Term Loan[280] | Cash Flow Activity | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(91,615) | $(96,253) | | Net cash used in investing activities | $(18,381) | $(6,900) | | Net cash provided by financing activities | $400,300 | $158,729 | | Effects of foreign exchange on cash | $499 | $(258) | | Net change in cash and restricted cash | $290,803 | $55,318 | | Contractual Obligations (as of June 30, 2022, in thousands) | Total | Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Delayed Draw Notes | $200,500 | $— | $— | $200,500 | $— | | Operating Lease Obligations | $1,676,113 | $126,755 | $721,064 | $357,269 | $471,024 | | Total | $1,876,613 | $126,755 | $721,064 | $557,769 | $471,024 | Critical Accounting Policies and Estimates This section describes the critical accounting policies and estimates that require significant management judgment and assumptions, including revenue recognition, leases (ASC 842), long-lived assets, income taxes, and stock-based compensation, emphasizing potential impacts of changes in estimates - Revenue recognition is recognized on a straight-line basis over the guest stay, net of discounts and refunds, with payments prior to check-in recorded as deferred revenue[305] - Leases (ASC 842) are recognized on the balance sheet as right-of-use assets and lease liabilities under ASC 842, with the incremental borrowing rate used to discount lease payments[308][309] - Impairment testing for long-lived assets (ROU assets, fixed assets) is based on comparing carrying value to undiscounted future cash flows, requiring significant judgment[314] - Stock-based compensation expense is measured at grant date fair value using the Black-Scholes-Merton model, with key assumptions including expected term, volatility, dividend yield, and risk-free interest rate[318][320] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily foreign currency exchange risk due to global operations and interest rate risk related to outstanding debt, and notes that inflation has not had a material effect to date - Sonder is exposed to foreign currency exchange risk due to international revenue and expenses denominated in foreign currencies, which can impact financial results[325][326] - The company is exposed to interest rate risk related to its outstanding debt, but a hypothetical 100 basis points change would not have a material impact as of June 30, 2022[328][329] - Inflation has not had a material effect on the business, but significant inflationary pressures could adversely impact operations and financial condition[330] Item 4. Controls and Procedures This section reports on the evaluation of disclosure controls and procedures, concluding they were not effective due to a material weakness in capturing and recording lease agreements. Remediation efforts, including new policies and systems, are underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to a material weakness[333] - A material weakness was identified in internal control over financial reporting related to the design and implementation of systems to capture and record lease agreements timely and accurately[334] - Remediation efforts include engaging a third-party consultant, developing formal policies, implementing a lease administration system, and providing additional personnel training, with testing planned for H2 2022[335] Part II - Other Information This part contains additional information not covered in the financial statements, including legal proceedings, a comprehensive discussion of risk factors, details on equity securities, defaults, mine safety disclosures, other information, and a list of exhibits Item 1. Legal Proceedings This item discloses ongoing legal proceedings, specifically a lawsuit with the Broad Street Landlord regarding Legionella bacteria contamination, where Sonder withheld rent and filed counterclaims - Sonder is involved in litigation with the Broad Street Landlord over Legionella bacteria contamination, where Sonder withheld rent due to constructive eviction and filed counterclaims for damages[338] - The lawsuit seeks no less than $3.9 million in damages from Sonder, which intends to vigorously defend itself[338] Item 1A. Risk Factors This item provides a comprehensive discussion of various risks that could materially affect the company's business, operating results, financial condition, or the market price of its securities, categorized into business and industry, government regulation, indebtedness and liquidity, and ownership of securities Risks Related to Our Business and Industry This section details risks inherent to Sonder's business and the hospitality industry, including operational complexities and market sensitivity - Company forecasts and projections are subject to significant uncertainty, and actual results may differ materially if underlying assumptions prove incorrect[341][342] - The Cash Flow Positive Plan, including restructuring and focus on 'capital light' properties, may not achieve anticipated benefits, potentially affecting growth and profitability[343][344] - Business is highly sensitive to trends in travel, hospitality, real estate markets, and general economic conditions, including the ongoing impact of the COVID-19 pandemic[345][346][347] - Challenges include inability to negotiate satisfactory leases, delays in property development, difficulties in integrating new properties, limited operating history, and intense competition from traditional hotels and short-term rental services[348][352][354][355][388] - Reliance on third-party distribution channels (OTAs) poses risks if relationships are terminated or terms change, potentially impacting revenue and brand visibility[392][393][394] - Operational results vary significantly period-to-period due to factors like Live Units, occupancy rates, seasonality, pricing, and external events, making future performance difficult to predict[398][399][400][401] - International expansion exposes the company to risks such as tailoring services, regulatory compliance, local market practices, and geopolitical factors[402] - The business depends on its reputation and brand strength, which can be adversely affected by guest service quality, safety concerns, negative publicity, and actions of third parties[407][408][409] - Risks related to technology include adapting to changes, reliance on third-party systems, security breaches, system failures, and supply chain interruptions[431][433][437][441][447] Risks Related to Government Regulation This section highlights regulatory risks, including evolving short-term rental laws, compliance costs, and stringent privacy regulations - Operating in various jurisdictions subjects Sonder to diverse and evolving regulatory and taxation requirements, including zoning, licensing, and short-term rental laws, which can increase costs and limit growth[479][480] - Compliance with public company laws (Sarbanes-Oxley, Dodd-Frank, Nasdaq listing) incurs substantial legal, accounting, and management costs, diverting resources[485] - Compliance with the Americans with Disabilities Act (ADA) and similar international laws may require substantial resources for property modifications or website accessibility, and non-compliance could lead to fines or lawsuits[486] - Processing personal data exposes the company to significant liabilities under privacy laws like GDPR, CCPA, CPRA, and PIPEDA, with potential for fines, reputational damage, and operational changes[487][488][489][490] - Failure to comply with consumer protection, marketing, and advertising laws, or industry-specific payment regulations (PCI DSS), could result in fines, restrictions, or harm to business[491][492] Risks Related to Indebtedness and Liquidity This section addresses risks associated with the company's debt and capital needs, including potential for additional capital and restrictive covenants - Sonder may require additional capital to support business growth, and future equity or debt financings could dilute existing stockholders or impose restrictive covenants[493] - Indebtedness of $172.4 million (Delayed Draw Notes) increases vulnerability to economic conditions, reduces cash flow for operations, and limits financial flexibility[494] - Credit facilities contain financial covenants (e.g., minimum EBITDA, liquidity) and restrictions that limit operational flexibility; non-compliance could lead to debt acceleration and adverse financial impact[495][496] Risks Related to Ownership of Our Securities This section outlines risks pertinent to owning Sonder's securities, including market volatility, dilution, and specific warrant risks - An active trading market for Sonder's securities may not be sustained, leading to volatility and potential decline in price, and delisting from Nasdaq could adversely affect liquidity and capital raising ability[497][498] - Resales of a significant number of common stock shares, especially after market stand-off periods, could depress the market price and impair future capital raising[499] - The market price of common stock and warrants may be volatile due to various factors, including financial results, key personnel changes, compliance issues, and broader market disruptions[500][501] - Public Warrants may expire worthless as their exercise price is $11.50 per share, and they can be amended or redeemed by the company under certain conditions, potentially disadvantageous to holders[506][507][508] - Provisions in the Amended and Restated Bylaws designate the Delaware Court of Chancery as the exclusive forum for certain stockholder actions, potentially limiting stockholders' choice of judicial forum[509][510][511] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[512] Item 3. Defaults Upon Senior Securities This item indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities to report[513] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[514] Item 5. Other Information This item states that there is no other information to report for the period - No other information to report[515] Item 6. Exhibits This item lists the exhibits filed as part of the Form 10-Q report, including offer letters, certifications, and Inline XBRL documents | Exhibit No. | Exhibit | Filed or Furnished Herewith | | :--- | :--- | :--- | | 10.1 | Offer Letter from Sonder USA Inc. to Deeksha Hebbar, dated August 1, 2022. | x | | 10.2 | Offer Letter from Sonder USA Inc. to Chris Berry, dated June 23, 2022. | x | | 31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | x | | 31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | x | | 32.1* | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | x | | 32.2* | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | x | | 101.INS | Inline XBRL Instance Document | x | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | x | Signatures This section contains the required signatures for the Form 10-Q report, certifying its submission on behalf of Sonder Holdings Inc - The report was signed by Sanjay Banker, President and CFO, on August 12, 2022[525]