NASDAQ:SOND Sonder Q3 2023 Earnings Report $2.20 -0.04 (-1.79%) Closing price 05/2/2025 03:59 PM EasternExtended Trading$2.27 +0.07 (+3.18%) As of 04:02 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings History Sonder EPS ResultsActual EPS-$5.86Consensus EPS -$3.75Beat/MissMissed by -$2.11One Year Ago EPSN/ASonder Revenue ResultsActual Revenue$160.90 millionExpected Revenue$164.12 millionBeat/MissMissed by -$3.22 millionYoY Revenue GrowthN/ASonder Announcement DetailsQuarterQ3 2023Date11/14/2023TimeN/AConference Call DateTuesday, November 14, 2023Conference Call Time5:00PM ETUpcoming EarningsSonder's Q4 2024 earnings is scheduled for Monday, May 5, 2025, with a conference call scheduled on Friday, May 9, 2025 at 10:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Sonder Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 14, 2023 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good day, and welcome to the Saunders Third Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. Operator00:00:27I would now like to hand the conference over to your speaker, Eli Zukerman, Senior Director of Strategic Finance and Investor Relations, please go ahead. Speaker 100:00:40Thank you, operator. Good afternoon, everyone. Welcome and thank you for joining us to discuss Saunders' Q3 2023 Financial Results. Joining me on the call is Frances Davidson, Co Founder and Chief Executive Officer and Dom Virgo, Chief Financial Officer. Our Q3 shareholder letter and Form 10 Q were issued today after the close of the market. Speaker 100:01:02These materials are available in the Investor Relations section of our website at investors. Sonder.com. We encourage you to reference the detailed information contained in those materials during our call. Before we begin, I would like to remind everyone that our prepared remarks and the Q and A session to follow contain forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our remarks, comments or materials, including our shareholder letter. Speaker 100:01:38Statements in our remarks, Comments and materials are effective today only and will not be updated as actual events unfold. You can find reconciliations of all non GAAP financial measures referred to in our remarks within our shareholder letter in the Investor Relations section of our website. With that, I will turn the call over to Francis. Speaker 200:01:58Thanks, Ellie. Good afternoon, everyone, and thank you for joining us today. I would like to start by thanking all of our Sonder employees, our guests and our partners for their support as we strive To provide a few highlights from the 3rd quarter, Revenue grew 29% year over year, driven by a 33% increase in bookable nights on a 31% increase in overall live units, With a 2% decline in ADR to $185 coupled with a 1% decline in occupancy rates to 83%. We also produced all of this growth with a 14% improvement in total overhead costs and a 9% improvement in total property level expenses per occupied night. These accomplishments resulted in a 60% improvement in our free cash flow compared to last year from negative $39,000,000 to negative 16,000,000 And a 21% improvement in free cash flow margin from negative 31% to negative 10%. Speaker 200:02:56I'm incredibly proud of the progress We're making toward our goal of sustainable positive free cash flow. We're pulling every lever at our disposal to rapidly deliver on this objective. Dom will share more details about our results with you in a few minutes. But first, I'd like to dive a bit deeper into our revenue and supply growth as well as the portfolio optimization program we're undertaking to improve our current portfolio economics. Across all of our Sonner properties, RevPAR declined 3% year over year. Speaker 200:03:25Our comparable properties RevPAR, which is calculated in line with industry peers and looks at RevPAR's persona properties that were live prior to January 1, 2022 grew 3% year over year. Several factors came into play this quarter, including broader travel industry trends, Product mix between hotel and apartment style properties, geographic mix, cohort mix and the impact of our corporate sales and pricing strategies. Starting with the product mix, we continue to see relative strength in our hotel product and moderate pricing pressure for our apartment product. On a comparable properties basis, our hotel product grew RevPAR by 8% year over year, while our apartment product RevPAR grew by 1%. This bifurcation is representative of the market trends with hotel RevPAR growing year on year, but alternative accommodation RevPAR decreasing across Our geographies, particularly in North America. Speaker 200:04:16Hotels now make up 40% of total live units compared to approximately 30% a year ago. While our hotel RevPAR growth outpaced that of our apartment product, RevPAR for our hotel properties tends to be slightly lower than our apartment style properties. All else equal, the shift towards hotel properties had a roughly 1% negative impact on our year over year RevPAR growth. From a profitability perspective, hotel properties also tend to have lower rent and property level expenses to offset the lower RevPAR. In terms of geographic performance, we're continuing to see strong demand for our properties in Europe and the Middle East, growing comparable properties RevPAR 14% year over year in those markets, while our North American comparable properties RevPAR remained flat. Speaker 200:05:01This trend is consistent with broader industry trends. According to the U. S. Travel Association, Americans traveling abroad in July exceeded pre pandemic levels by 10%, while inbound travel Still lags pre pandemic levels by roughly 20%. Our RevPAR was also negatively impacted by some slower starts And a few of our recent North American property openings. Speaker 200:05:23Properties that have been live for less than a year had average RevPAR approximately 30% lower than our mature units in Q3. It typically takes time for new properties to ramp up, but this is a larger drag than we've seen in the past, primarily due to greater proportion of properties that rely heavily on B2B sales. We've been investing in local sales teams and markets where the assets require them, and we're seeing early signs of success from this initiative. Additionally, we're seeing challenges in properties in Mexico City, which make up over 10% of the cohort of units that went live in the last year. We're planning to partner with property owners there to address these challenges via our portfolio optimization program, which we'll discuss in more detail shortly. Speaker 200:06:03Our B2B sales efforts are regaining momentum. Our new VP of Sales joined us in Q3, and we're seeing an acceleration in our forward bookings. But we expect the impact on earned revenue to ramp over the next few quarters as corporate sales tend to have longer booking windows. Success in our corporate sales segment should enable us to bolster RevPAR in our primarily urban markets and in particular during weekdays. And finally, this quarter we lean into a pricing strategy that focuses on building a better base of occupancy earlier in the booking window and enables us to have greater pricing power over the rest of the booking window. Speaker 200:06:37Overall, our experimentation and early results suggest this approach should yield higher ADR. We leaned into the strategy more aggressively in late July and expect to see more of its impact in the coming quarters. We also continue to make progress on other RevPAR initiatives we've previously highlighted, including our elevated visual merchandising platform and ancillary revenue initiatives. Moving on to the supply side, we're pleased to report our live units grew 31% year over year, driven by continued strong conversion from our contracted units to live units. However, our total portfolio of live units plus contracted units did decline 10% year over year and 2% sequentially. Speaker 200:07:14Similar to last quarter, as development cost uncertainty and persistent high interest rates remain a significant issue for developers and landlords, we felt it was prudent to exclude a number of contracted units with Financing contingencies, which drove the year over year and sequential declines. Even after excluding these units, we continue to have a notable backlog of contracted units, representing a strong growth pipeline of nearly 50% of our live unit count. This is in line with our strategy set out in June 2022 To proactively reduce our planned signing space and focus primarily on growth driven by the conversion of our contracted units. The strategy supports our goal to deliver sustainable positive free cash flow as soon as possible, given upfront costs to originate and sign our contracted deals have already been incurred. They're expected to be cash accretive as they come live due to their capital light structure and this narrowed focus enables us to prioritize improving the economics of our current portfolio. Speaker 200:08:08As we strive to grow top line revenue, we also continue to scrutinize future leasehold obligations, particularly on underperforming assets. While a majority of our properties are profitable, some of our properties do have negative margins. With that, we're collaborating with external advisors to implement a portfolio optimization program working to understand how we can mitigate losses related to these underperforming properties, assessing our portfolio of rents relative to current operations and the existing market rents and exploring alternative solutions to minimize their drag on our bottom line. We're engaging our landlords to work towards solutions at certain properties where both parties may benefit We value the collaboration with our landlords as we'll seek mutually agreeable outcomes as part of the strategic initiative. It's never the intent for an operation to underperform, but in today's challenging marketplace, we must appreciate that a proactive approach to asset management is more important than ever. Speaker 200:08:59Before turning it over to Dom, I want to highlight several new additions to the world class team we're building at Sonder. First, I'm thrilled to welcome Tom Bui and Simon Turner to our Board. Tom and Simon are among the most accomplished executives in the hospitality industry. They both bring deep expertise and experience in areas including executive leadership, operations, revenue I'm also pleased to announce we've been recently joined by Adam Bowen as Chief Accounting Officer, Katie Potter as General Counsel and Chad Fletcher as Vice President of Sales. Each of these individuals brings experience and knowledge that will be valuable assets as we continue executing on our plan to achieve sustainable positive free cash flow as soon as possible. Speaker 200:09:37With that, I'll turn the call over to our Chief Financial Officer, Dom Burgot. Dom? Speaker 300:09:41Thank you, Francis. Hello, everyone, And thank you for your patience as we took a few more days to finalize our closed process and release our results. We're pleased to report our best free cash flow quarter to date as a public company, demonstrating continued progress on our path to achieving sustainable I will first provide a brief overview of our Q3 financial results and then take you through guidance before opening the call to questions. In the Q3, free cash flow before one time restructuring costs totaled negative $16,000,000 compared to negative $27,000,000 In the Q2 of this year and negative $39,000,000 in the Q3 of 2022. Free cash flow margin also improved year over year, reaching negative 10% compared to negative 31% in the Q3 of 2022. Speaker 300:10:44We generated $161,000,000 of revenue, representing a 29% increase compared to Q3 of 2022. As Francis mentioned, key top line performance metrics improved year over year, including live units, Bookable nights and occupied nights, while we experienced a slight decline in RevPAR. We ended the quarter with approximately 11,800 live units, representing 31% growth year on year, And we reached a milestone of over $1,000,000 bookable nights in Q3, an increase of 33% year over year, driven by the live unit growth. Occupancy remains strong at 83% in the 3rd quarter, A slight decline from the 84% in Q3 of 2022, even as we saw significant growth in bookable nights. Since Francis went into details on our revenue performance, I'll now focus my remarks on the cost side. Speaker 300:11:46For Q3 2023, total costs and operating expenses increased by 17% year over year To $218,000,000 which is inclusive of $5,000,000 of stock based compensation expense. The 17% increase in total costs on the back of a revenue increase of 29% and bookable nights growth of 33% Illustrates the strong improvements we've been driving in our operating leverage. Property level costs grew by 19%, while our non property level operating Expenses were lower by 14% compared to the prior year. This operating leverage improvement in turn drove our trailing twelve Cash contribution margin to 19% in the most recent quarter compared to 17% in Q3 of 2022. We remain focused on driving leverage across all cost categories to support our goal of achieving sustainable positive free cash flow As soon as possible. Speaker 300:12:48Francis already spoke of our efforts to right size our largest expense item, the cost of our leases, Where a large scale initiative is currently underway, aiming to improve our individual property economics to meet the targeted profitability levels They were underwritten with. We remain relentlessly focused on driving efficiencies across our property level costs, where we've outperformed our cost targets for the 1st 3 quarters of 2023 due to the success of multiple direct cost reduction initiatives. We're also continuing to identify non property level cost savings as illustrated by the 14% decrease in this category As a reminder, we have reduced our corporate workforce over 30% on a net basis Since going public in early 2022 and continue to press on to reduce our non headcount expenses as well. Driving consistent improvements in our cost structure is now integrated in our normal operating rhythm across the enterprise. As discussed in our Q2 call in August, we've evaluated the introduction of more common non GAAP profitability metrics to make it easier to compare with our peers. Speaker 300:14:10As such, we plan to start using adjusted EBITDA and adjusted EBITDAR In place of cash contribution margin, beginning with our Q1 2024 Earnings Release. Turning to the balance sheet. As of September 30, we had $207,000,000 in cash, Cash equivalents and restricted cash and $197,000,000 in total debt. As you've seen in our 8 ks last week, We've worked with our lenders to amend our credit agreements in the wake of the SVB events from earlier this year. We're happy with the outcome, which allows us to regain some flexibility with the expansion of the banks we can use to issue letters of credit And the extension of the PIK feature on the term loan in exchange for a down payment reducing our gross net level. Speaker 300:15:01We appreciate the partnership we have with our lenders. Regarding guidance, note that the ranges we are providing for revenue and free cash flow For the Q4 of 2023, exclude any future impact of the portfolio optimization program That we discussed earlier on this call, which could be material. For the Q4 of 2023, We expect revenue between $165,000,000 $175,000,000 which at the midpoint represents a 148,000,000 or 32% year over year improvement for full year 2023 and a $35,000,000 or 26% Improvement versus the Q4 of 2022. This implies a slight decline from the previous revenue range For free cash flow, we expect between negative $39,000,000 and negative $29,000,000 in the 4th quarter. At the midpoint of the guidance range provided, this translates to a $58,000,000 or 33% year over year improvement in free cash flow for the full year of 2023. Speaker 300:16:18This is in line with the bottom half of the implied Q4 range from our last quarter call, Reflecting the lower revenue guidance and the additional $4,300,000 in one time prepayment interest penalty associated with our amended credit agreements, Partially offset by continued progress on cost reduction initiatives. Note that while Q1 2023 free cash flow sequentially worsened compared to Q4 of 2022. We do not expect this pattern to repeat itself going into 2024. As we continue to ramp our corporate sales and collection processes and better spread payments of certain annual contracts Throughout the year, we do expect a sequential improvement in free cash flow from Q4 of 2023 to Q1 of 2024. As a reminder, the same as past quarters, our guidance is based on our best knowledge available from internal data and 3rd party forecasters and does not contemplate an extreme slowdown in the mix. Speaker 300:17:25Our guidance framework Also does not incorporate any future impact on our portfolio optimization program, which may be material Given that we are in the early stages and there are still many unknowns about the magnitude and timing of the revenue and free cash flow impacts. While we are optimistic about the final outcome of this process, there is a high degree of uncertainty Around how this will affect revenue and free cash flow in the short term as we strive to bring our entire portfolio up to positive unit economics. With that, we are now happy to take your questions. Operator? Thank Operator00:18:21And our first question will come from the line of Ron Josey with Citi. Your line is open. Speaker 300:18:27Hey, guys. This is Robert on for Ron. Thanks for taking the question. Quick question on gross margin. It came in a little bit lower than In the quarter, can you guys talk to kind of some of the main drivers behind that miss? Speaker 300:18:39And then perhaps comment on how you see margins trending over the next few quarters here? Hey, I'll take that question. This is Don. In terms of the gross margins, I think this is mostly driven by the RevPAR, meaning just a little bit lower than where it was last year and From what our expectations were, as you saw, the revenue results came in a little bit towards the low end of the range. In terms of the cost structure of the business, we continue to see our EBITDA margin improving, our cost per unit coming down. Speaker 300:19:18So We're pleased with the success we've seen so far and the progress we've made on the cost side. But again, this remains in terms of GM percentage subject to the Volatility with RevPAR in any given period. So going forward, I think it's the same dynamic, continues to work on the cost side and work on improving our RevPAR Just the same gross margins. Understood. Thanks a lot. Speaker 300:19:47You bet. Operator00:19:48Thank you. One moment for our next question. And that will come from the line of Nick Jones with JMP Securities. Your line is open. Speaker 400:20:02Great. Thanks for taking the questions. I guess 2. 1, just as we think about the total portfolio versus the live units, I know that total portfolio number is coming down for kind of you're pulling some of the properties out of that. Is this kind of the right level to think about it going forward? Speaker 400:20:24In other live units, you're kind of approaching 70%, A percent of the total portfolio live. Do we kind of expect this number to stagnate for a little bit as you focus on free cash flow From here and then I guess the second question is, how are you feeling about the balance sheet, kind of given the macro environment and kind of what you See ahead from here. Thanks. Speaker 200:20:49Yes. Thanks so much, Nick. Francis Hill will take the first question. So, yes, as you pointed out, the core focus is really on driving the business to cash flow positivity. And we've been Beating the same drum since June of 2022, but really the story there will be to convert our existing contracted properties into live properties. Speaker 200:21:11And so we're not seeking out to go and sign a lot of new properties. We're just focused on making sure that the ones that have been signed where expenses Already been deployed to go and identify these assets and open them That those are done successfully. And of course now also working on our portfolio optimization program. And so our real estate team's effort is really focused on Ensuring that the portfolio economics as a whole are as strong as possible and that we work with our landlord partners to go and make these underperforming assets perform. I also want to point out that we've got still nearly 50% embedded growth, Which we think is really exciting, frankly. Speaker 200:21:55A lot of properties that we think are going to be really great assets for the brand, for the guest experience and Add more dollars to contribution dollars to the business are going to open in the next couple of years. And so we think that this industry leading growth is actually quite exciting and the growth rate is not an issue for the business at this point. We're growing Quite rapidly, it's really just doing everything we can to go and accelerate the timeline to cash flow positivity. And then on the live unit growth side, we just posted in this Q3 a 31% year over year growth of live units. And so We're really happy with that pace and we'll keep on focusing the team on improving the free cash flow performance of the business in the near term. Speaker 300:22:43And I'll take the balance sheet question. So you saw we had healthy cash cushion at the end of the quarter. You see also the sustained progress we've been making on the free cash flow front. That trajectory, I think, when you look at The visual is very telling. It's up into the right and we're working hard on our plan to keep that going. Speaker 300:23:05Rolex units, as Francis Just talked about there's a lot of embedded growth in the model that we feel good about. Unit economics, so reducing property level Costs including improving the rent profile of these properties and then controlling preopening costs and overhead as we have in the So that's the recipe for us to continue to improve free cash flow. And when you contrast that with where we're at with the balance sheet, we see a That's a trajectory we're comfortable with. Great. Speaker 400:23:37Thank you, both. Operator00:23:40Thank you. One moment for our next question. And that will come from the line of Jed Kelly with Oppenheimer. Your line is open. Speaker 500:23:54Hey, great. Thanks for taking my question. Can you just give us an update on how your RevPAR initiatives and the technology around your revenue management is trending? And then I know it's still relatively early and you don't want to guide to next year, but can you sort of give us What you're sort of looking for and what you think for 2024 looks like? Thanks. Speaker 200:24:18Thanks so much, Chad. No, I think that I'll start with the revenue management question. I think it's an incredibly important topic. It's a very important lever for the profitability of the business. And frankly, I think that we have room for improvement on our pricing strategy. Speaker 200:24:32One of the changes that we've recently initiated It's to ensure that our pricing trajectories are more stable. And by that what I mean that within 7 days or 14 days before Target dates, we would go and reduce price to drive more occupancy and we actually think that's not the right approach and building a base of occupancy earlier Into the booking window, but then holding price as we approach that date of arrival is actually a better strategy to drive Stronger ADRs and stronger RevPARs. So that's a major change that we're initiating. I think there are some dates where we've been selling out A little bit too early and that's caused our capacity to yield optimally to be impaired. And so those are just a few tweaks that You can expect that we're going to put to work in the next few months quarters. Speaker 200:25:24And all of that, of course, is powered by a lot of technology. We've built much of this technology in house. We're not afraid to also benchmark our technology versus third parties and to always explore whether our solutions are the most adequate. But really the biggest opportunity as we see it in the near term is those is this price trajectory, the sellouts and ensuring that we can Optimally drive RevPAR through higher ADR. Speaker 300:25:54And Jen, I'll take your question on 24. Obviously, it's still too early for us to guide on 24 accordingly. We're Finalizing our 24 plans as we speak, we still got a few more weeks to go to button all of that up. The other thing is the property optimization program, the portfolio optimization program that Francis described earlier. This is very much in your early innings. Speaker 300:26:19We feel confident it will improve the trajectory meaningfully, but for now there's too many unknowns for us to embed any guidance based on that. And The last thing I'll say is similar to my answer to the prior question. I'll point you back to the trajectory. You see the trajectory of improvements. I illustrated earlier that the ingredients behind that improvement and those we expect to continue to work on and sustain going forward. Speaker 300:26:44And Right now, that's how we're framing 24 at a high level, continued improvements in the trajectory and working on the key levers to deliver But no formal guidance at this point. More to come in the next one. Speaker 500:26:58Thank you. Speaker 300:27:00Okay. Operator00:27:01Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Francis Davidson for any closing remarks. Speaker 200:27:10Well, I just wanted to say thank you to all of our listeners and participants for joining the call today. We look forward to Operator00:27:26This concludes today's program. Thank you all for participating. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSonder Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Sonder Earnings HeadlinesI ate at a new restaurant with a beloved chef, tucked away in a leafy city suburb, and one dish was the best I'd ever hadApril 27, 2025 | msn.comFirst look inside Sonder - Cardiff's newest restaurant run by ex-Pasture chefApril 17, 2025 | msn.comSilicon Valley Gold RushA new technology has sparked a modern-day gold rush in Silicon Valley. OpenAI’s Sam Altman invested $375M. Bill Gates has backed four companies in this space. The World Economic Forum calls it “the most exciting human discovery since fire.” Whitney Tilson believes this trend could mint a new class of wealthy investors—and he’s sharing one stock to watch now, for free.May 5, 2025 | Stansberry Research (Ad)Sonder cuts costs, plans layoffs ahead of Marriott tie-inApril 15, 2025 | finance.yahoo.comSonder Holdings raises capital, provides update on Marriott integrationApril 15, 2025 | markets.businessinsider.comSonder Announces $50 Million in Layoffs and Spending Cuts Ahead of Marriott IntegrationApril 14, 2025 | skift.comSee More Sonder Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Sonder? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Sonder and other key companies, straight to your email. Email Address About SonderSonder (NASDAQ:SOND) engages in the hospitality business. It operates and manages properties comprising 1-, 2-, and 3+ bedroom; and studio apartments, as well as 1-bedroom hotel rooms for leisure travelers and families, digital nomads, and business travelers in North America, Europe, and the Middle East. 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There are 6 speakers on the call. Operator00:00:00Good day, and welcome to the Saunders Third Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. Operator00:00:27I would now like to hand the conference over to your speaker, Eli Zukerman, Senior Director of Strategic Finance and Investor Relations, please go ahead. Speaker 100:00:40Thank you, operator. Good afternoon, everyone. Welcome and thank you for joining us to discuss Saunders' Q3 2023 Financial Results. Joining me on the call is Frances Davidson, Co Founder and Chief Executive Officer and Dom Virgo, Chief Financial Officer. Our Q3 shareholder letter and Form 10 Q were issued today after the close of the market. Speaker 100:01:02These materials are available in the Investor Relations section of our website at investors. Sonder.com. We encourage you to reference the detailed information contained in those materials during our call. Before we begin, I would like to remind everyone that our prepared remarks and the Q and A session to follow contain forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our remarks, comments or materials, including our shareholder letter. Speaker 100:01:38Statements in our remarks, Comments and materials are effective today only and will not be updated as actual events unfold. You can find reconciliations of all non GAAP financial measures referred to in our remarks within our shareholder letter in the Investor Relations section of our website. With that, I will turn the call over to Francis. Speaker 200:01:58Thanks, Ellie. Good afternoon, everyone, and thank you for joining us today. I would like to start by thanking all of our Sonder employees, our guests and our partners for their support as we strive To provide a few highlights from the 3rd quarter, Revenue grew 29% year over year, driven by a 33% increase in bookable nights on a 31% increase in overall live units, With a 2% decline in ADR to $185 coupled with a 1% decline in occupancy rates to 83%. We also produced all of this growth with a 14% improvement in total overhead costs and a 9% improvement in total property level expenses per occupied night. These accomplishments resulted in a 60% improvement in our free cash flow compared to last year from negative $39,000,000 to negative 16,000,000 And a 21% improvement in free cash flow margin from negative 31% to negative 10%. Speaker 200:02:56I'm incredibly proud of the progress We're making toward our goal of sustainable positive free cash flow. We're pulling every lever at our disposal to rapidly deliver on this objective. Dom will share more details about our results with you in a few minutes. But first, I'd like to dive a bit deeper into our revenue and supply growth as well as the portfolio optimization program we're undertaking to improve our current portfolio economics. Across all of our Sonner properties, RevPAR declined 3% year over year. Speaker 200:03:25Our comparable properties RevPAR, which is calculated in line with industry peers and looks at RevPAR's persona properties that were live prior to January 1, 2022 grew 3% year over year. Several factors came into play this quarter, including broader travel industry trends, Product mix between hotel and apartment style properties, geographic mix, cohort mix and the impact of our corporate sales and pricing strategies. Starting with the product mix, we continue to see relative strength in our hotel product and moderate pricing pressure for our apartment product. On a comparable properties basis, our hotel product grew RevPAR by 8% year over year, while our apartment product RevPAR grew by 1%. This bifurcation is representative of the market trends with hotel RevPAR growing year on year, but alternative accommodation RevPAR decreasing across Our geographies, particularly in North America. Speaker 200:04:16Hotels now make up 40% of total live units compared to approximately 30% a year ago. While our hotel RevPAR growth outpaced that of our apartment product, RevPAR for our hotel properties tends to be slightly lower than our apartment style properties. All else equal, the shift towards hotel properties had a roughly 1% negative impact on our year over year RevPAR growth. From a profitability perspective, hotel properties also tend to have lower rent and property level expenses to offset the lower RevPAR. In terms of geographic performance, we're continuing to see strong demand for our properties in Europe and the Middle East, growing comparable properties RevPAR 14% year over year in those markets, while our North American comparable properties RevPAR remained flat. Speaker 200:05:01This trend is consistent with broader industry trends. According to the U. S. Travel Association, Americans traveling abroad in July exceeded pre pandemic levels by 10%, while inbound travel Still lags pre pandemic levels by roughly 20%. Our RevPAR was also negatively impacted by some slower starts And a few of our recent North American property openings. Speaker 200:05:23Properties that have been live for less than a year had average RevPAR approximately 30% lower than our mature units in Q3. It typically takes time for new properties to ramp up, but this is a larger drag than we've seen in the past, primarily due to greater proportion of properties that rely heavily on B2B sales. We've been investing in local sales teams and markets where the assets require them, and we're seeing early signs of success from this initiative. Additionally, we're seeing challenges in properties in Mexico City, which make up over 10% of the cohort of units that went live in the last year. We're planning to partner with property owners there to address these challenges via our portfolio optimization program, which we'll discuss in more detail shortly. Speaker 200:06:03Our B2B sales efforts are regaining momentum. Our new VP of Sales joined us in Q3, and we're seeing an acceleration in our forward bookings. But we expect the impact on earned revenue to ramp over the next few quarters as corporate sales tend to have longer booking windows. Success in our corporate sales segment should enable us to bolster RevPAR in our primarily urban markets and in particular during weekdays. And finally, this quarter we lean into a pricing strategy that focuses on building a better base of occupancy earlier in the booking window and enables us to have greater pricing power over the rest of the booking window. Speaker 200:06:37Overall, our experimentation and early results suggest this approach should yield higher ADR. We leaned into the strategy more aggressively in late July and expect to see more of its impact in the coming quarters. We also continue to make progress on other RevPAR initiatives we've previously highlighted, including our elevated visual merchandising platform and ancillary revenue initiatives. Moving on to the supply side, we're pleased to report our live units grew 31% year over year, driven by continued strong conversion from our contracted units to live units. However, our total portfolio of live units plus contracted units did decline 10% year over year and 2% sequentially. Speaker 200:07:14Similar to last quarter, as development cost uncertainty and persistent high interest rates remain a significant issue for developers and landlords, we felt it was prudent to exclude a number of contracted units with Financing contingencies, which drove the year over year and sequential declines. Even after excluding these units, we continue to have a notable backlog of contracted units, representing a strong growth pipeline of nearly 50% of our live unit count. This is in line with our strategy set out in June 2022 To proactively reduce our planned signing space and focus primarily on growth driven by the conversion of our contracted units. The strategy supports our goal to deliver sustainable positive free cash flow as soon as possible, given upfront costs to originate and sign our contracted deals have already been incurred. They're expected to be cash accretive as they come live due to their capital light structure and this narrowed focus enables us to prioritize improving the economics of our current portfolio. Speaker 200:08:08As we strive to grow top line revenue, we also continue to scrutinize future leasehold obligations, particularly on underperforming assets. While a majority of our properties are profitable, some of our properties do have negative margins. With that, we're collaborating with external advisors to implement a portfolio optimization program working to understand how we can mitigate losses related to these underperforming properties, assessing our portfolio of rents relative to current operations and the existing market rents and exploring alternative solutions to minimize their drag on our bottom line. We're engaging our landlords to work towards solutions at certain properties where both parties may benefit We value the collaboration with our landlords as we'll seek mutually agreeable outcomes as part of the strategic initiative. It's never the intent for an operation to underperform, but in today's challenging marketplace, we must appreciate that a proactive approach to asset management is more important than ever. Speaker 200:08:59Before turning it over to Dom, I want to highlight several new additions to the world class team we're building at Sonder. First, I'm thrilled to welcome Tom Bui and Simon Turner to our Board. Tom and Simon are among the most accomplished executives in the hospitality industry. They both bring deep expertise and experience in areas including executive leadership, operations, revenue I'm also pleased to announce we've been recently joined by Adam Bowen as Chief Accounting Officer, Katie Potter as General Counsel and Chad Fletcher as Vice President of Sales. Each of these individuals brings experience and knowledge that will be valuable assets as we continue executing on our plan to achieve sustainable positive free cash flow as soon as possible. Speaker 200:09:37With that, I'll turn the call over to our Chief Financial Officer, Dom Burgot. Dom? Speaker 300:09:41Thank you, Francis. Hello, everyone, And thank you for your patience as we took a few more days to finalize our closed process and release our results. We're pleased to report our best free cash flow quarter to date as a public company, demonstrating continued progress on our path to achieving sustainable I will first provide a brief overview of our Q3 financial results and then take you through guidance before opening the call to questions. In the Q3, free cash flow before one time restructuring costs totaled negative $16,000,000 compared to negative $27,000,000 In the Q2 of this year and negative $39,000,000 in the Q3 of 2022. Free cash flow margin also improved year over year, reaching negative 10% compared to negative 31% in the Q3 of 2022. Speaker 300:10:44We generated $161,000,000 of revenue, representing a 29% increase compared to Q3 of 2022. As Francis mentioned, key top line performance metrics improved year over year, including live units, Bookable nights and occupied nights, while we experienced a slight decline in RevPAR. We ended the quarter with approximately 11,800 live units, representing 31% growth year on year, And we reached a milestone of over $1,000,000 bookable nights in Q3, an increase of 33% year over year, driven by the live unit growth. Occupancy remains strong at 83% in the 3rd quarter, A slight decline from the 84% in Q3 of 2022, even as we saw significant growth in bookable nights. Since Francis went into details on our revenue performance, I'll now focus my remarks on the cost side. Speaker 300:11:46For Q3 2023, total costs and operating expenses increased by 17% year over year To $218,000,000 which is inclusive of $5,000,000 of stock based compensation expense. The 17% increase in total costs on the back of a revenue increase of 29% and bookable nights growth of 33% Illustrates the strong improvements we've been driving in our operating leverage. Property level costs grew by 19%, while our non property level operating Expenses were lower by 14% compared to the prior year. This operating leverage improvement in turn drove our trailing twelve Cash contribution margin to 19% in the most recent quarter compared to 17% in Q3 of 2022. We remain focused on driving leverage across all cost categories to support our goal of achieving sustainable positive free cash flow As soon as possible. Speaker 300:12:48Francis already spoke of our efforts to right size our largest expense item, the cost of our leases, Where a large scale initiative is currently underway, aiming to improve our individual property economics to meet the targeted profitability levels They were underwritten with. We remain relentlessly focused on driving efficiencies across our property level costs, where we've outperformed our cost targets for the 1st 3 quarters of 2023 due to the success of multiple direct cost reduction initiatives. We're also continuing to identify non property level cost savings as illustrated by the 14% decrease in this category As a reminder, we have reduced our corporate workforce over 30% on a net basis Since going public in early 2022 and continue to press on to reduce our non headcount expenses as well. Driving consistent improvements in our cost structure is now integrated in our normal operating rhythm across the enterprise. As discussed in our Q2 call in August, we've evaluated the introduction of more common non GAAP profitability metrics to make it easier to compare with our peers. Speaker 300:14:10As such, we plan to start using adjusted EBITDA and adjusted EBITDAR In place of cash contribution margin, beginning with our Q1 2024 Earnings Release. Turning to the balance sheet. As of September 30, we had $207,000,000 in cash, Cash equivalents and restricted cash and $197,000,000 in total debt. As you've seen in our 8 ks last week, We've worked with our lenders to amend our credit agreements in the wake of the SVB events from earlier this year. We're happy with the outcome, which allows us to regain some flexibility with the expansion of the banks we can use to issue letters of credit And the extension of the PIK feature on the term loan in exchange for a down payment reducing our gross net level. Speaker 300:15:01We appreciate the partnership we have with our lenders. Regarding guidance, note that the ranges we are providing for revenue and free cash flow For the Q4 of 2023, exclude any future impact of the portfolio optimization program That we discussed earlier on this call, which could be material. For the Q4 of 2023, We expect revenue between $165,000,000 $175,000,000 which at the midpoint represents a 148,000,000 or 32% year over year improvement for full year 2023 and a $35,000,000 or 26% Improvement versus the Q4 of 2022. This implies a slight decline from the previous revenue range For free cash flow, we expect between negative $39,000,000 and negative $29,000,000 in the 4th quarter. At the midpoint of the guidance range provided, this translates to a $58,000,000 or 33% year over year improvement in free cash flow for the full year of 2023. Speaker 300:16:18This is in line with the bottom half of the implied Q4 range from our last quarter call, Reflecting the lower revenue guidance and the additional $4,300,000 in one time prepayment interest penalty associated with our amended credit agreements, Partially offset by continued progress on cost reduction initiatives. Note that while Q1 2023 free cash flow sequentially worsened compared to Q4 of 2022. We do not expect this pattern to repeat itself going into 2024. As we continue to ramp our corporate sales and collection processes and better spread payments of certain annual contracts Throughout the year, we do expect a sequential improvement in free cash flow from Q4 of 2023 to Q1 of 2024. As a reminder, the same as past quarters, our guidance is based on our best knowledge available from internal data and 3rd party forecasters and does not contemplate an extreme slowdown in the mix. Speaker 300:17:25Our guidance framework Also does not incorporate any future impact on our portfolio optimization program, which may be material Given that we are in the early stages and there are still many unknowns about the magnitude and timing of the revenue and free cash flow impacts. While we are optimistic about the final outcome of this process, there is a high degree of uncertainty Around how this will affect revenue and free cash flow in the short term as we strive to bring our entire portfolio up to positive unit economics. With that, we are now happy to take your questions. Operator? Thank Operator00:18:21And our first question will come from the line of Ron Josey with Citi. Your line is open. Speaker 300:18:27Hey, guys. This is Robert on for Ron. Thanks for taking the question. Quick question on gross margin. It came in a little bit lower than In the quarter, can you guys talk to kind of some of the main drivers behind that miss? Speaker 300:18:39And then perhaps comment on how you see margins trending over the next few quarters here? Hey, I'll take that question. This is Don. In terms of the gross margins, I think this is mostly driven by the RevPAR, meaning just a little bit lower than where it was last year and From what our expectations were, as you saw, the revenue results came in a little bit towards the low end of the range. In terms of the cost structure of the business, we continue to see our EBITDA margin improving, our cost per unit coming down. Speaker 300:19:18So We're pleased with the success we've seen so far and the progress we've made on the cost side. But again, this remains in terms of GM percentage subject to the Volatility with RevPAR in any given period. So going forward, I think it's the same dynamic, continues to work on the cost side and work on improving our RevPAR Just the same gross margins. Understood. Thanks a lot. Speaker 300:19:47You bet. Operator00:19:48Thank you. One moment for our next question. And that will come from the line of Nick Jones with JMP Securities. Your line is open. Speaker 400:20:02Great. Thanks for taking the questions. I guess 2. 1, just as we think about the total portfolio versus the live units, I know that total portfolio number is coming down for kind of you're pulling some of the properties out of that. Is this kind of the right level to think about it going forward? Speaker 400:20:24In other live units, you're kind of approaching 70%, A percent of the total portfolio live. Do we kind of expect this number to stagnate for a little bit as you focus on free cash flow From here and then I guess the second question is, how are you feeling about the balance sheet, kind of given the macro environment and kind of what you See ahead from here. Thanks. Speaker 200:20:49Yes. Thanks so much, Nick. Francis Hill will take the first question. So, yes, as you pointed out, the core focus is really on driving the business to cash flow positivity. And we've been Beating the same drum since June of 2022, but really the story there will be to convert our existing contracted properties into live properties. Speaker 200:21:11And so we're not seeking out to go and sign a lot of new properties. We're just focused on making sure that the ones that have been signed where expenses Already been deployed to go and identify these assets and open them That those are done successfully. And of course now also working on our portfolio optimization program. And so our real estate team's effort is really focused on Ensuring that the portfolio economics as a whole are as strong as possible and that we work with our landlord partners to go and make these underperforming assets perform. I also want to point out that we've got still nearly 50% embedded growth, Which we think is really exciting, frankly. Speaker 200:21:55A lot of properties that we think are going to be really great assets for the brand, for the guest experience and Add more dollars to contribution dollars to the business are going to open in the next couple of years. And so we think that this industry leading growth is actually quite exciting and the growth rate is not an issue for the business at this point. We're growing Quite rapidly, it's really just doing everything we can to go and accelerate the timeline to cash flow positivity. And then on the live unit growth side, we just posted in this Q3 a 31% year over year growth of live units. And so We're really happy with that pace and we'll keep on focusing the team on improving the free cash flow performance of the business in the near term. Speaker 300:22:43And I'll take the balance sheet question. So you saw we had healthy cash cushion at the end of the quarter. You see also the sustained progress we've been making on the free cash flow front. That trajectory, I think, when you look at The visual is very telling. It's up into the right and we're working hard on our plan to keep that going. Speaker 300:23:05Rolex units, as Francis Just talked about there's a lot of embedded growth in the model that we feel good about. Unit economics, so reducing property level Costs including improving the rent profile of these properties and then controlling preopening costs and overhead as we have in the So that's the recipe for us to continue to improve free cash flow. And when you contrast that with where we're at with the balance sheet, we see a That's a trajectory we're comfortable with. Great. Speaker 400:23:37Thank you, both. Operator00:23:40Thank you. One moment for our next question. And that will come from the line of Jed Kelly with Oppenheimer. Your line is open. Speaker 500:23:54Hey, great. Thanks for taking my question. Can you just give us an update on how your RevPAR initiatives and the technology around your revenue management is trending? And then I know it's still relatively early and you don't want to guide to next year, but can you sort of give us What you're sort of looking for and what you think for 2024 looks like? Thanks. Speaker 200:24:18Thanks so much, Chad. No, I think that I'll start with the revenue management question. I think it's an incredibly important topic. It's a very important lever for the profitability of the business. And frankly, I think that we have room for improvement on our pricing strategy. Speaker 200:24:32One of the changes that we've recently initiated It's to ensure that our pricing trajectories are more stable. And by that what I mean that within 7 days or 14 days before Target dates, we would go and reduce price to drive more occupancy and we actually think that's not the right approach and building a base of occupancy earlier Into the booking window, but then holding price as we approach that date of arrival is actually a better strategy to drive Stronger ADRs and stronger RevPARs. So that's a major change that we're initiating. I think there are some dates where we've been selling out A little bit too early and that's caused our capacity to yield optimally to be impaired. And so those are just a few tweaks that You can expect that we're going to put to work in the next few months quarters. Speaker 200:25:24And all of that, of course, is powered by a lot of technology. We've built much of this technology in house. We're not afraid to also benchmark our technology versus third parties and to always explore whether our solutions are the most adequate. But really the biggest opportunity as we see it in the near term is those is this price trajectory, the sellouts and ensuring that we can Optimally drive RevPAR through higher ADR. Speaker 300:25:54And Jen, I'll take your question on 24. Obviously, it's still too early for us to guide on 24 accordingly. We're Finalizing our 24 plans as we speak, we still got a few more weeks to go to button all of that up. The other thing is the property optimization program, the portfolio optimization program that Francis described earlier. This is very much in your early innings. Speaker 300:26:19We feel confident it will improve the trajectory meaningfully, but for now there's too many unknowns for us to embed any guidance based on that. And The last thing I'll say is similar to my answer to the prior question. I'll point you back to the trajectory. You see the trajectory of improvements. I illustrated earlier that the ingredients behind that improvement and those we expect to continue to work on and sustain going forward. Speaker 300:26:44And Right now, that's how we're framing 24 at a high level, continued improvements in the trajectory and working on the key levers to deliver But no formal guidance at this point. More to come in the next one. Speaker 500:26:58Thank you. Speaker 300:27:00Okay. Operator00:27:01Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Francis Davidson for any closing remarks. Speaker 200:27:10Well, I just wanted to say thank you to all of our listeners and participants for joining the call today. We look forward to Operator00:27:26This concludes today's program. Thank you all for participating. You may now disconnect.Read morePowered by