Sonder Holdings Inc.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us to discuss Sonder's first quarter 2022 financial results. Joining me on the call today are Francis Davidson, co-founder and CEO, and Sanjay Banker, president and CFO. Full details of our results and additional management commentary are available in our first quarter 2022 shareholder letter, which can be found on the investor relations section of our website, at investors.sonder.com. Before we start, I'd like to remind you that the following discussion and the Q&A session at the end of this call contain forward-looking statements, including but not limited to, Sonder's strategies, market opportunities, and future financial and operating results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information about the factors that could cause our actual results to differ from those expressed or implied in any forward-looking statements can be found in Sonder's periodic and other SEC filings. The forward-looking statements and discussion of risks in this conference call, including responses to your questions, are based on current expectations as of today. Sonder assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Also, the following discussion contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, please see our shareholder letter posted to our Investor Relations website. Now, I'll turn the call over to Frances Davidson, Saunders' co-founder and CEO.

Thanks, Ellie. Good afternoon, everyone, and thank you for joining us today. I'm very pleased to be reporting on our strong first quarter 2022 results. My remarks today will span three core areas. First, I'll provide a quick snapshot of our financial performance for the quarter. Second, I'll share some of our recent business and operational highlights. And third, I'll provide pertinent updates across each of our five main strategic priorities that we laid out in our year end shareholder letter published in March, which was just about 60 days ago. We're pleased to report strong year-over-year performance in the first quarter, growing RevPar by 52% and revenue by 155%. We ended Q1 with over 7,700 live units in 39 markets across 10 countries. We also grew our total portfolio by 48% to approximately 19,300 live and contracted units. In March, we commemorated our recent public listing by ringing the opening bell at NASDAQ in New York City, and we held corresponding team celebrations across our markets globally. On the heels of this exciting milestone, we were named to Time Magazine's 100 Most Influential Companies list, a compilation of distinguished businesses making an extraordinary impact around the world. The Sonder underscores the work of all Sonder employees worldwide to deliver an incredible guest experience and meet the evolving needs of the modern traveler as we build a tech-enabled, design-forward hospitality brand. In Q1, we continue to make progress on all five pillars underpinning our aggressive growth strategy and framework for long-term sustainable value creation. So our first lever is delivering an incredible guest experience. As a reflection of strong guest affinity with Sonder, our direct bookings remained over 40% in Q1. We also entered 2022 armed with promising results from several pilot initiatives conducted at select properties in the second half of last year. These involved testing new offerings for many aspects of the guest experience with the goal of employing technology and design to simplify and enhance the guest experience. By the end of Q1, properties that ran these pilot initiatives meaningfully outperformed their average customer satisfaction for the quarter. As a result of this success, we're extending these initiatives to several additional properties in our portfolio and continuing to layer in multiple other guest offerings to create an elevated and distinctive experience. Also worth highlighting, we recently announced our commitment to eliminate single-use plastic amenities in all units by end of this year. To the best of our knowledge, Saunders is the only hospitality brand to commit to an elimination of all single-use plastic amenities within a one-year timeframe. Because of our rapid growth, we have the chance to make a really positive impact now that will compound over time. We're seizing the opportunity to work with great brands that are developing sustainably packaged products exclusively for us. This way, we create a positive experience for our guests, but also aligns with our shared values. Additionally, it makes good business sense, driving long-term efficiencies and savings across our operations. Our second lever is securing high quality properties at attractive economics. As I mentioned, we grew our total portfolio by 48% year over year to approximately 19,300 units, driven by the conversion of high quality deals from our late stage pipeline. We consider total portfolio growth to be our most important supply-side metric as it provides the best forward-looking view of future live supply. Our current late stage pipeline of prospective deals has reached an all-time high, both in terms of quantity of units and strength of deal economics, giving us confidence in our ability to continue growing our portfolio at an accelerating pace. We're also growing our real estate team and improving our processes to get new real estate professionals ramped as quickly as possible to support our portfolio growth. Finally, we're continuously improving our real estate systems to better track data and performance and proactively identify and resolve deal blockers. Our live units grew by 54% year-over-year to 7,700 units. We launched several new domestic and international properties in the first quarter and opened our first property in Orange County, California. Our portfolio of properties that went live after 2020 almost entirely consists of properties where Sonder manages and operates the entire building instead of only a few floors or sections. While operating entire buildings delivers a more consistent guest experience and greater operational efficiencies, the potential for opening delays impacts larger number of units at once and can lead to variable live unit growth patterns quarter over quarter. These dynamics were in play during Q1 where, despite meaningful year-over-year live unit growth, supply chain disruptions and labor shortages were a challenge, and certain property openings originally scheduled for early this year have now been delayed to subsequent quarters. We have dedicated teams across the world focusing on several initiatives across inventory, technology, and process mapping to reduce these delays and enable properties to be brought live faster at scale. Our third lever is our capacity to generate strong RevPars. We believe there's still a lot of runway on RevPar growth and expect to continue to benefit greatly from overall travel market recovery. As a point of reference, U.S. upper upscale hotels achieved RevPars of 72% of their pre-pandemic Q1 2019 RevPars in Q1 of 2022, 200 basis points lower than their Q4 of 2021 relative recovery. This was the first quarter since 2020, where the overall market recovery has contracted. We believe Saunders' unique value proposition to guests has allowed us to rebound faster than the overall market, and we expect to continue to benefit from the overall market recovery with US upper upscale hotel RevPar projected to grow by 39% in 2022. In addition to capturing strong anticipated market recovery, we're also focusing on several initiatives to grow RevPar. For example, in Q1, we began experimenting with a new pricing strategy targeting higher occupancy in order to take advantage of demand elasticity. We are marketing bookings further in advance, continuously improving our pricing strategy and developing additional sales and marketing capabilities to bolster demand. Early successes of this initiative were evident in Q1 as we increased occupancy rate by 700 basis points year over year to 73%, and we're still gaining traction through the first month of Q2. We're also continuing to implement a number of revenue-focused technology initiatives, including offering guests the ability to pay to upgrade rooms prior to their stay, improving our monetization of early check-ins and late check-outs, and implementing dynamic length of stay pricing as longer stays are margin accretive. Additionally, we continue to make substantial early progress on our new corporate travel offering following its launch in the second half of 2021. We more than doubled our corporate travel accounts from over 100 at the end of Q4 2021 to nearly 250 accounts at the end of Q1 of 2022. We're seeing strong corporate transient growth with signed travel management companies, particularly with small and medium enterprise companies whose corporate travel has rebounded meaningfully. We're also seeing growth in group bookings, particularly in entertainment, production, and sports, and corporate housing bookings such as summer internship programs and corporate relocations. We're still in the very early innings of our corporate travel offering, but have confidence that this is a huge opportunity and will continue to gain traction in the coming quarters. Our fourth lever is to continue driving operating efficiencies. We continue to implement meaningful enhancements to our technology that allow us to operate more efficiently, and we're seeing the impact of these efforts play out. For example, we rolled out a new task taxonomy in our hospitality operations application. By creating a flexible yet robust data structure that provides the right information needed to solve guest requests, we were able to meaningfully reduce median task completion times. We also introduced smart clean shuffling, which allows us to optimize housekeeping personnel scheduling and enables us to fulfill early check-in, late check-out requests while still welcoming guests with a spotless room. The ability to deliver flexible check-in and check-out in an automated fashion adds real value to our guest experience, creating an ability to drive incremental rev car and improve CSAT. On the guest-facing side, we expanded our rollout of mobile keys for iOS devices across a significant portion of our global portfolio, and this will further optimize the contactless check-in process. We're excited about the additional initiatives underway and confident in our ability to continue introducing technological and operational improvements to drive incremental efficiencies that further enhance our path to profitability. Our fifth and final levers are people and culture. Extending hospitality to all is among our leadership principles, and we nurture a culture of inclusivity at all levels of the organization. This past quarter, we invested in ensuring our people embody this by delivering dedicated coaching in this area. We kicked off a two-part program of special training to all people managers, dedicated to conscious inclusion awareness and education to strengthen relationships and collaborations. Also on the people front, our quarterly engagement survey from Q1 showed exceptionally strong and record engagement among our employees with respondents highlighting autonomy and ability to freely express their opinions being key drivers of engagement. And to finish, I'd like to reiterate that we remain laser focused on the execution of our strategy powered by the levers I've outlined today. We believe that pulling these levers consistently will deliver strong free cash flow and value creation over the long term. I'd like to thank our employees across the world for their tireless work and express my gratitude to our partners and investors for their ongoing support. With that, I will turn over the call to our President and CFO, Sanjay Banker, to provide you with further details on our recent financial performance and an update on our outlook. Sanjay.

Thank you, Francis, and good afternoon, everyone. Our Q1 results are detailed in the shareholder letter we issued after the market closed today, and supplemental information will be available in our first quarter Form 10Q, that will be filed later this week. This afternoon, I will provide a brief overview of our first quarter financial results and our second quarter outlook before we open the call to questions. Unless otherwise specified, all of the Q1 growth figures cited in my remarks are year-over-year comparisons. In the first quarter, we delivered $80 million of revenue, representing a 155% increase compared to Q1 2021. Our Q1 revenue was fueled by 52% RevPar growth, our new pricing strategy targeting higher occupancy, and the expansion of our live portfolio, which grew 54%. Our key performance metrics improved year over year, including live units, bookable nights, occupied nights, and RevPar. We ended the quarter with over 7,700 live units, representing 54% growth. through expansion in our existing market with several new property openings. At quarter end, we had approximately 19,300 units in our total portfolio, representing 48% growth, driven by the conversion of high quality deals from our late stage pipeline. In Q1, we had approximately 689,000 bookable nights, representing an increase of 68%, driven by our live unit growth. Additionally, Late Q4 2021 property openings led to an increase in bookable nights in Q1 2022. Our live unit growth, coupled with our strategic focus on increasing occupancy, also drove significant growth in our occupied nights, which increased 84%. As a result, our occupancy rate increased 700 basis points to 73%. Our rev par grew 52%, to $117, and our ADR grew 39% to $160, though we did see the impact of travel restrictions and hesitancy due to the emergence of the Omicron variant, compressing our Q1 REF PAR in excess of our typical seasonality patterns. This Omicron-driven pressure on revenue also impacted our profitability metrics in Q1. However, we continued to demonstrate year-over-year progress in profitability margins. Our property-level loss margin improved by 3,300 basis points, and our adjusted EBITDA loss margin improved by 6,400 basis points in Q1 2022. We were pleased to see COVID-related restrictions and hesitancy begin to abate toward the end of Q1. We're highly encouraged by the recent momentum in forward-looking trends at the start of Q2, which indicate a snapback of travel demand in store for summer 2022. Combined with our continued focus on improving operational efficiencies, this gives us confidence in our ability to continue progressing on our path to profitability. As a reminder, our presentation of adjusted EBITDA takes the upfront cash benefits we receive in the form of initial rent abatement periods and owner-funded CapEx allowances and straight lines them over the life of a lease in accordance with GAAP. These benefits can be substantial. and result in cash landlord payments meaningfully lower than reported gap rents during periods of live unit growth. Therefore, as a management team, when calculating our internal measure of adjusted EBITDA, we consider these benefits in the period where we actually receive them, as we believe it presents a better approximation of cash from operations. These factors are captured by adding back our gap rent to landlord payments adjustment and FF&E allowance realized adjustment. And these led to a positive combined benefit of $17 million in Q1 2022. Total costs and expenses increased by 72% to $176 million in Q1, inclusive of $7 million of stock-based compensation expense in the quarter. Total costs and expenses were driven by additional investments in research and development, sales and marketing as we build out our corporate travel capabilities, G&A expenses related to our ongoing needs as a public company, and operations costs related to the rapid expansion of our live units. Our global headcount increased to over 1,700 to support our rapid live unit growth and prepare for our expected growth in 2022 and beyond. As of March 31st, 2022, we had $407 million in cash, including less than $1 million in restricted cash. Although Q1 featured its own unique set of challenges given the effects of Omicron, in addition to our typical first quarter seasonality, we are pleased with our execution in navigating these dynamics to start the year. Despite these temporary impacts, our large market opportunities and long runway for future growth remain highly compelling. Given the more recent uptick we've seen in forward booking trends as we've entered Q2, we continue to believe the time is right to responsibly pursue our growth strategy. We remain highly confident this will create significant long-term value for all founder stakeholders. Turning to our outlook, in the second quarter of 2022, we anticipate revenue growth of more than 140% year over year versus $47 million in the second quarter of 2021, primarily due to our expectations around robust travel demand recovery into summer 2022 and continued growth in bookable nights and live units. We expect adjusted EBITDA losses in Q2 of better than $80 million as we continue to rapidly expand our live units in Q2 and beyond and scale our personnel to support our expected portfolio growth this year. The rebound in travel demand, combined with our visibility on live unit and bookable night growth, gives us the confidence to reaffirm the full-year 2022 outlook we provided in March. We continue to expect to grow full-year revenues by between 100% to 110% as compared to full-year 2021. We also continue to expect full-year 2022 adjusted EBITDA losses to be lower than 2021 on a percentage of revenue basis and higher on a dollar basis. I'll close our prepared remarks today by reiterating that our growth pipeline remains robust and we continue to benefit from strong relationships with our existing and prospective real estate partners who believe Sonder best represents the future of hospitality. We remain committed to and relentlessly focused on driving sustainable long-term value for our stakeholders. We are now happy to take your questions. Operator?