Sonder Holdings Inc.

Q3 2023 revenue was $161 million, up 29% year over year. Free cash flow before one-time restructuring costs was negative $16 million, compared with negative $39 million in Q3 2022 and negative $27 million in Q2 2023; free cash flow margin improved to negative 10% from negative 31% a year ago. Total costs and operating expenses were $218 million, up 17% year over year, including $5 million of stock-based compensation. Live units ended at approximately 11,800, up 31%, and bookable nights topped 1 million, up 33%; occupancy was 83%, versus 84% last year. For Q4 2023, management guided to revenue of $165 million to $175 million and free cash flow of negative $39 million to negative $29 million. At the midpoint, that implies full-year 2023 revenue of $648 million, up 32% year over year, and full-year free cash flow of negative $58 million, a 33% year-over-year improvement. Management said Q4 guidance excludes future impacts from the portfolio optimization program, which could be material, and expects sequential free cash flow improvement from Q4 2023 to Q1 2024.

Francis Davidson emphasized that Sonder is prioritizing the path to sustainable positive free cash flow over aggressive new property signings. He framed the quarter as proof that the business can grow while improving overhead and property-level efficiency, while also acknowledging pressure in apartment product, North America, and some newer openings. He highlighted initiatives to improve pricing discipline, strengthen B2B sales, and optimize the portfolio with landlords and advisers to reduce losses from underperforming assets.

Dom Bourgault said Q3 free cash flow before one-time restructuring costs was negative $16 million, the company’s best public-company quarter, and noted revenue of $161 million plus a 17% increase in total costs and operating expenses to $218 million. He pointed to operating leverage, with non-property operating expenses down 14% year over year and trailing 12-month cash contribution margin up to 19% from 17%. On the balance sheet, he cited $207 million of cash, cash equivalents and restricted cash, and $197 million of total debt, plus a recent amendment to credit agreements that adds flexibility but includes a $4.3 million one-time prepayment interest penalty. He also said the company will switch from cash contribution margin to adjusted EBITDA and adjusted EBITDAR beginning with Q1 2024 reporting.

Analysts pressed on why gross margin came in below expectations, and Dom said the main driver was slightly lower RevPAR versus last year and versus internal expectations; he emphasized that margin remains sensitive to RevPAR volatility even as cost per unit improves. On portfolio size and live units, Francis said Sonder is intentionally shifting from new signings to converting already-contracted units and optimizing the existing portfolio, while still pointing to nearly 50% embedded growth. On the balance sheet, Dom said the company is comfortable with its cash cushion and current trajectory. In response to questions about RevPAR technology and 2024 outlook, Francis said the biggest near-term opportunity is tightening pricing trajectories to build occupancy earlier and hold price closer to stay date, while Dom said it is too early to give formal 2024 guidance because of the still-early portfolio optimization work.