Sonder(US:SOND)2023-11-19 15:48Financial Data and Key Metrics - Revenue grew 29% year-over-year to $161 million in Q3 2023, driven by a 33% increase in bookable nights and a 31% increase in live units [30][45] - Free cash flow improved significantly, reaching negative $16 million in Q3 2023 compared to negative $39 million in Q3 2022, with free cash flow margin improving from negative 31% to negative 10% [22][45] - Occupancy remained strong at 83%, slightly down from 84% in Q3 2022, despite significant growth in bookable nights [30] - Property level costs grew by 19%, while non-property level operating expenses decreased by 14% year-over-year [31] Business Line Performance - Hotel product RevPAR grew 8% year-over-year, while apartment product RevPAR grew only 1%, reflecting market trends favoring hotels over alternative accommodations [18] - Hotels now make up 40% of total live units, up from 30% a year ago, with hotel properties having lower RevPAR but also lower rent and property level expenses compared to apartment-style properties [46] - New properties (live for less than a year) had average RevPAR approximately 30% lower than mature units, primarily due to a greater reliance on B2B sales [19] Market Performance - Europe and the Middle East saw strong demand, with comparable properties RevPAR growing 14% year-over-year, while North American RevPAR remained flat [26] - North American properties faced challenges, particularly in Mexico City, where properties make up over 10% of the cohort of units that went live in the last year [19] Strategic Direction and Industry Competition - The company is focused on converting contracted units into live units, with a backlog of contracted units representing nearly 50% of the live unit count, supporting sustainable positive free cash flow [20] - A portfolio optimization program is underway to improve the economics of underperforming properties, with early signs of success in reducing costs and improving profitability [4][28] - The company is investing in local sales teams and corporate sales efforts, which are expected to bolster RevPAR in urban markets, particularly during weekdays [47] Management Commentary on Operating Environment and Future Outlook - Management remains focused on achieving sustainable positive free cash flow as soon as possible, with continued improvements in cost structure and operating leverage [31][45] - The company is optimistic about the trajectory of improvements but acknowledges uncertainties around the impact of the portfolio optimization program on revenue and free cash flow in the short term [33] - For Q4 2023, the company expects revenue between $165 million and $175 million and free cash flow between negative $39 million and negative $29 million [52] Other Important Information - The company has reduced its corporate workforce by over 30% since going public in early 2022 and continues to identify non-property level cost savings [4] - New additions to the leadership team include Tom Buoy and Simon Turner to the Board, Adam Bowen as Chief Accounting Officer, Katie Potter as General Counsel, and Chad Fletcher as Vice President of Sales [21] Q&A Session Summary Question: Gross margins came in lower than expected. What were the main drivers, and how do you see margins trending? - The lower gross margins were primarily driven by RevPAR coming in slightly below expectations, with revenue results at the low end of the range. The company continues to focus on cost reduction and improving RevPAR to sustain gross margins [53][35] Question: How should we think about the total portfolio versus live units, and what is the outlook for the balance sheet? - The company is focused on converting contracted units into live units, with nearly 50% embedded growth expected in the next couple of years. The balance sheet remains healthy, with a strong cash cushion and sustained progress on free cash flow [36][37][38] Question: Can you provide an update on RevPAR initiatives and revenue management technology? - The company is making changes to its pricing strategy, focusing on building a base of occupancy earlier in the booking window to drive higher ADR and RevPAR. Technology improvements are also being implemented to optimize pricing trajectories [39][60]