Sonder Holdings Inc.

Good 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. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ellie Zuckerman, Senior Director of Strategic Finance and Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Welcome, and thank you for joining us to discuss Sonder's third quarter 2023 financial results. Joining me on the call is Frances Davidson, Co-Founder and Chief Executive Officer, and Don Burgot, Chief Financial Officer. Our third quarter shareholder letter and Form 10-Q were issued today after the close of the market. These 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&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 filing, which could cause future results to differ materially from those expressed in or implied by our remarks, comments, or materials, including our shareholder letter. Statements 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.

Thanks, 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 fulfill our mission to revolutionize hospitality through design and technology, making a world of better stays open to all. To provide a few highlights from the third 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 million to negative 16 million and a 21% improvement in free cash flow margin from negative 31% to negative 10%. I'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 Sondra properties, RevPar declined 3% year over year. Our comparable properties RevPar, which is calculated in line with industry peers and looks at RevPars for Sondra properties that were live prior to January 1st, 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 continued 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 rev par by 8% year over year, while our apartment product rev par 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. Hotels 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 remain flat. This trend is consistent with broader industry trends. According to the US 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 in a few of our recent North American property openings. Properties 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 a 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. Our 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 leaned 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. Overall, 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. Similar 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. As 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 from revised commitments. 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. Before 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 generation, and real estate. 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. With that, I'll turn the call over to our Chief Financial Officer, Don Borgo. Don.