Q1 2022 Sonder Holdings Inc Earnings Call
Thank you for standing by and welcome to the Saundra holding first quarter 2022 earnings conference 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 one on your telephone.
Please be advised that todays call may be recorded should you require any further assistance. Please press star zero.
I'd now like to hand, the call over to Alex Zuckerman director of strategic Finance.
Thank you operator, good afternoon, ladies and gentlemen, thank you for joining us to discuss Saunders first quarter 2022 financial results joining me on the call today are for.
Davidson <unk> co founder and CEO , and Sanjay Baker, 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 Dot Saunter dotcom.
Before we start I'd like to remind you that the following discussion and the Q&A session. At the end of this call contains forward looking statements, including but not limited to.
Thunder strategy 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 saunders 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.
<unk> 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.
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 Francis Davidson Saunders co founder and CEO .
Thanks Ali good afternoon, everyone and thank you for joining us today I'm very pleased to be reporting on our strong first quarter of 2022 results.
My remarks today will spend 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 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 7700 live units in 39 markets markets across 10 countries.
We also grew our total portfolio by 48% to approximately 19300 lives contracted units.
In March we commemorated our recent public listing by ringing the opening bell at NASDAQ in New York City, and we help 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.
Compilation of distinguished businesses, making an extraordinary impact around the world. This honor underscores the work of all center 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.
And Q1, we continued to make progress on all five pillars underpinning our aggressive growth strategy.
As a framework for long term sustainable value creation.
So our first lever is delivering an incredible guest experience that is a reflection of strongest affinity with thunder or direct bookings remained over 40% in Q1.
We also entered 2022 arm with promising results from several pilot initiatives conducted at select properties in the second half of last year. These involve testing new offerings for many aspects of the guest experience with the goal of employing technology and designed to simplify and enhance the guest experience.
By the end of Q1 properties that Randy's pilot initiatives meaningfully outperformed the average customer service satisfaction for the quarter as a result of the success. We're expanding these initiatives to several additional properties in our portfolio and continuing to layer in multiple other guest offerings to create an elevated 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 Thunder 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 but 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 19300 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 metrics as it provides the best forward looking view of future lives supply are currently stage pipeline of prospective deals has reached an all time high both in terms of quantity of units with strength of deal economics, giving us confidence in our ability to continue growing our portfolio and at an accelerating pace.
We're also growing our real estate team and improving our processes to get to real estate professionals rapid as quickly as possible to support our portfolio growth.
Finally, we're continuously improving our real estate systems, better track data performance and proactively identify and resolve deal blockers.
Our lives units grew by 54% year over year to 7700, Yes, 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 consistent with properties were solder manages and operates the entire building instead of only a few four sections, while operating entire building delivers a more consistent guest experience and greater operational efficiencies the potential for opening delays impact larger number of units at once and can lead to variable life unit growth patterns.
Quarter over quarter.
These dynamics were in play during Q1, where despite meaningful year over year wide unit growth supply chain disruptions and labor shortages were challenge and certain property openings. Originally scheduled for early this year have now been delight 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 revpar.
We believe there is 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 revpar of 72% of their pre pandemic Q1, 2019, Revpar in Q1 of 2020 to 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.
He believes 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 U S. 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 upgrade rooms prior to their say improving our monetization of early check in the late checkouts and implementing dynamic went to state pricing is longer stays are margin accretive.
Additionally, we continued 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 find 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 into the 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 we 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 to 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 to quantity in our hospitality operations applications by creating a flexible yet robust data structure that.
The right information needed to solve guest requests we were able to meaningfully reduce medium task completion times.
We also introduced smart clean shuttling, which allows us to optimize housekeeping personnel scheduling.
It builds us to fulfill early check in late checkout request, while still welcoming guests with a spotless room.
The ability to deliver flexible check in checkout in an automated fashion adds real value to our guest experience, creating and ability to drive incremental revpar and improved CCI guest facing side, we extended our rollout with 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 lever is our people and culture.
Standing hospitality to all of us 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 opinion 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 have 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 tell 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 Sunday.
Thank you Brandon and good afternoon, everyone.
Our Q1 results are detailed in the shareholder letter issued after the market closed today.
Implemented information will be available in our first quarter Form 10-Q 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 particulars I did in my remarks, our year over year comparisons.
In the first quarter, we delivered $80 million of revenue, representing a 155% increase compared to Q1 2021 Q.
Q1 revenue was fueled by 52% Revpar growth, our new pricing strategy targeting higher occupancy and the expansion of our life portfolio, which grew 54%.
Our key performance metrics improved year over year, including live units.
A couple nights.
<unk>.
And Revpar.
We ended the quarter with over 7700 units, representing 54% growth through.
Through expansion in our existing markets with several new property openings.
At quarter end, we had approximately 19300 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 689000 bookable nights, representing an increase of 68%.
Driven by our live unit growth. Additionally.
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 revpar 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 variance compressing our Q1 revpar 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 and profitability margins are property level loss margin improved by 3300 basis points and our adjusted EBITDA loss margin improved by 6400 basis points from Q1 2022.
We were pleased to see Covid related restrictions and hesitancy begin to abate towards the end of Q1.
We're highly encouraged by the recent momentum in forward booking trends at the start of Q2, which indicate a netback 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 benefit we received in the form of initial rent abatement periods and owner funded capex allowances and streamlined them over the life of the lease in accordance with GAAP.
These benefits can be substantial and result in cash landlord payments meaningfully lower than reported GAAP earnings during periods of live unique growth.
Therefore, as a management team.
When calculating our internal measure of adjusted EBITDA.
We considered 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 GAAP rate to landlord payments adjustment and Aetna.
With any allowance realized adjusted 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 cost and expenses were driven by additional investments in research and development.
Sales and marketing as we build out our corporate travel capabilities.
<unk> expenses related to our ongoing either as a public company and operations costs related to the rapid expansion of our live units.
Our global head count increased to over 1700 to support a rapid my view that 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 <unk>. In addition to our typical first quarter seasonality.
I'm pleased with our execution in navigating these dynamics to start the year.
Despite these temporary impacts our large market opportunity and long runway for future growth remain highly compelling.
Given the more recent uptick we've seen in forward booking trends as we 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 of <unk> 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 2002.
'twenty, two and continued growth in Bookable nights of my view of it.
We expect adjusted EBITDA losses in Q2, better than $80 million as we continue to rapidly expand our wide 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 why you didn't bookable nyquil.
Gives us the confidence to reaffirm the full year 2022 outlook. We provided in March we continue to expect to grow full year revenue 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 Thunder best represents the future of hospitality.
We remain committed to it.
Leslie focused on driving sustainable long term value for our stakeholders.
We are now happy to take your questions operator.
Thank you again to ask a question. Please press star one on your Touchtone telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Yes.
Our first question comes from the line of Jed Kelly of Oppenheimer. Your line is open.
Hey.
Great. Thanks for taking my question and congrats on a <unk>.
Good quarter in a difficult environment, just just two if I could start off with.
So can you kind of give us an update.
The amount of live supply, we should expect to go or the amount of supply we should expect to go live.
In the second quarter and then on those.
Contracted units.
How many whats the amount of supply.
You should expect you to have by the end of the year and then my second question is on technology can you provide a status update on the tech rollout you highlighted in your last earnings and give us a glimpse into any new launches that you have in the coming quarters. Thank you.
Thank you Jack for the question I'll start with the first part of your question around supply growth and then I'll pass it off to Frances to talk about technology.
So with respect to overall annual supply growth as you pointed out we had a strong signed unit pipeline.
Our backlog that'll go live where not to.
Declaring guidance around 2022 end of year live supply.
As we said before and as we've made it reiterated today, we're anticipating 2022 growth of 100, 210%, which is a balanced diet. If you will of Revpar growth substantial revpar growth of course, given the recovery and rebound in travel, especially going into the summer.
As well as <unk> unit growth and so we.
We continue to see those contracted units turned into live units of course, we don't control construction ourselves and therefore part of.
Our lives unit growth are likely to credit is largely dependent on the speed with which developers can turn that signed supply get it through the construction or renovation cycle and deliver the keys to us.
So that leads naturally to some lumpiness or variability in particular, as we do larger and bigger deals until they're building that create.
Quarterly or sequential Lumpiness in Windows signed units turned into live units, which is why we don't.
Declared quarterly guidance around supply, but that's obviously a factor that feeds into our revenue guidance in that revenue guidance for Q2 feels incredibly robust given the forward booking volumes that we see 140% year on year growth for Q2 and under the 110% year on year.
For 2022.
Okay.
Let me step in for the question on some of the progress on our technology and the things that we've rolled out so just to step back.
This is to build the operating system for hospitality. So thats a suite of software that spans a lot of jobs within the company from supply signing to supply chain to opening properties to operate day to day generating revenue both outside of dot com and through our distribution channels.
And so it's really a wide wide range of technology, Let me, maybe just focus on a couple of areas.
Guest experience.
This is one of the really important areas of differentiation for our business and the core team is a core theme. There is self service. The idea that we want to provide guests the capacity to have access to information and send request check themselves in and do that all seamlessly through the mobile app, which a vast majority of our guests.
Every day when they stay with us So self service is a big theme just constantly rolling and feature set the mobile app to make things.
Faster and easier.
For I guess, the second pizza messaging, so really important update to our app for about 20% of our users, but we plan on rolling that out to all users shortly.
Is a dedicated messaging tab. So now at the tap of a button you can.
Start messaging with a sort of representative.
At <unk>.
<unk> continuously to the request.
And the information that you might be seeking.
What's really interesting about that messaging feature is that we don't have that kind of a session based messaging, where you kind of are connected to an agent and then after the compensation is done that that conversation disappears forever. This is kind of the standard and hospitality for the messaging feature our messaging is much more kind of continuous you can see a school or conversations that you've had in the past and you can set your phone aside for a couple of hours.
Take it back and take a look at the messaging and see what our team has answered.
To your question. So it's just really something that feels more like texting a friend in a sense, but obviously through this on a mobile app.
And then another thing is the rollout of our mobile piece, so on iOS and across the majority of our properties as possible now to just.
A couple of caps on the outset up your phone to become your key of course summer has always been a contactless check in company and we've had we still it's still possible to enter by entering digits on the keypad, but.
But now also we can skip that and then just use the phone directly to access buildings and so a lot of exciting stuff on the guest experience front.
And then the second piece I want to highlight as operations I've mentioned at the top of the call the.
Robotics tasks taxonomy and so this is a really important categorization of 500 different kinds of work streams that occur in the day to day operation in the hospitality business, but we very carefully figured out the hierarchy.
The structure of all of these interactions so that when guests say, hey, I need. This we can easily collect the right information and map that dispatch that work stream to the right person within Thunder, so that we can efficiently and rapidly resolve those.
Those guests request. So we've seen we've seen a measurement of the speed at which we can close those cases and of course. This provides a really rich data set for us. So that we can have pulled our our service promise in our surface SLA. So now than in the second example, I wanted to provide was on smart clean shuffling. So theres a lot of initial.
Initiatives that we rolled out around.
Improving our capacity to automate upgrades the monetization of early check in check out like we described there is another piece of technology, which is our what we call. Our shuffling algorithm. So that we can compaq bookings into our calendar in the most efficient way possible. So that we can achieve really high occupancy rates well all of these pieces of technology have implications when it.
Two our housekeeping schedules and before we had the schedule of that had to be manually update it and now this process has been automated so that we can optimize our housekeeping costs, but in a way that that really blends in nicely with the other pieces of technology that dynamically adjust which which room Augusta is going to be allocated to.
In an automated fashion. So those are just a few examples but theres a lot more the landscape is really is really broad and the ambition that we have is a large one.
But really really good progress that we're happy to speak about today hopefully that provides some color.
Yes that was great and then just a follow up on on the guidance of 140% revenue growth in two Q sort of implies a decent deceleration in three Q. Despite a similar comp.
Can you just talk about is that just conservatism or can you talk about some of like how you're thinking about the back half because it does provide sort of still good growth, but it does provide some some sort of a step down in the back half. Thanks.
Yes. Thank you I would say, it's a combination of conservatism, it's premature to have a more robust or forward leading call for the back half and we have a great amount of visibility into Q2, giving forward looking dynamics and so we are comfortable making the call. We are for Q2, given the early booking in the robust.
The summer travel season, a lot of which is already on the books.
Allows us to lean into.
In the guide.
We're very excited where obviously remain excited for the back half of the Youtube, but we'll be able to.
More visibility to that as we get closer to the back half of the year.
Thank you.
Thank you.
Thank you. Our next question comes from Ron Josey of Citi. Your line is open.
Great. Thanks for taking the question maybe a quick follow up just on <unk> question on live units you know Sanjay you. Francis can you talk about if the pressures you saw or the industry saw a lot of unit growth and <unk> do they abated somewhat here in March April May and then Francis we spent a lot of time in the letter and on the call just talking about the tax deposit.
Free cash flow.
And I think there you know the recovery is far from complete I think Sanjay you just talked about some of the trends there, but any additional insights on forward bookings on pricing trends I know revpar was talked about there as well would be helpful. Thank you.
Thank you Ron I'll start with the first part of the question and for instance can take the second.
So with respect to live unit growth.
I'd say Q1 definitely had the ongoing supply chain issues that we've talked about in prior earnings call.
Round, the degree to which developers themselves are reliant and dependent on building materials supply chain labor and the like with respect to being able to deliver keys to us and so we did see that continue.
I would also add though an important driver was the fact that we had a large Q4 live unit growth and that actually to some extent pulled forward. Some things that could have opened in Q1 that we accelerated stepped on the gas and got them open before the end of 2021 and so if you look at our occupied occupied nights growth sequentially.
Q1 versus Q4, we saw 20% sequential growth in occupied nights and Thats, partly a phenomenon of the fact that we had a large growth in lives units late in Q4, that's really created and our ability to have strong sequential occupied nights growth and so we still felt really good about our capacity growth in Q1, even though that.
Largely driven by a pull forward of.
Like unit growth that came into the latter part of Q4 of 2021.
We remain optimistic about supply growth going into the year, our life I'm wondering on contracted unit portfolio still gives us great visibility that while we can't control the exact month or at least those properties go live we do have strong visibility into.
Number of properties going live here over the next three quarters of the year, which underpins our forecast for full year revenue guidance.
Yes.
That's super helpful. Any insights on the recovery just I know you'd mentioned some part on <unk>, but just relative to the path to positive free cash flow. Thank you.
Yes, absolutely, yes, let me step in here. So Q1 was the first revpar recovery reversion since 2020 across urban market. So we've seen continuous improvements versus 2019 levels for every quarter, leading up to Q1 of 2022, but as we just discussed are feeling really optimistic about the forward booking trends.
The snapback of travel, we're really really really excited about folks that for a couple of years have been.
Looked up and hesitant to travel, but because those are leisure travelers, whether those are business travelers and particularly in urban markets, but it really seems like the sentiment has shifted around the desire to go back on the road and explore and stake.
In those urban markets and Thats reflected in the data that we've seen for forward looking bookings over the last.
A month or so.
Like you mentioned, there's a lot of headroom for.
For growth in that metric our comps are.
Our expected too or rather the industry is expected to grow revpar, 39%.
Year over year in 2022. This is Smith travel research and so very very optimistic there about what the picture looks like.
Like I mentioned on our side, how that relates to free cash flow and let me just reiterate that free cash flow is an absolute top priority for the business and we're not just talking about kind of a trivial long term free cash flow over the next.
Decade, plus but this is something that we're actively working on in the very much here and now and we want to show some progress along that dimension.
It comes from the improvements in market conditions.
Yes.
We're expecting to see over the next year year or two.
No, but that's not that's not that theres a lot of other initiatives that we pursued in order to improve revpar weekday revpar as corporate demand, where we've announced our increase in accounts from 100 to 250 that really helps for weekday railcars and thats kind of go get revenue for us that that wasn't there before we launched our corporate travel program in the middle of 2021.
Series of initiatives Darrin on operational efficiency, which is really technology and tapping into economies of scale. So that variable to cash contribution margin as we as we've described it which is our operating cash flow minus the kind of overhead other operating expenses, which was 10% in Q1 of 2022, it's kind of the baseline, but with a really weak March.
Recovery scenario as the market recovers that number is expected to meaningfully improve and so with that margin.
As we apply more and more like the units that generate greater and greater quantity of cash and of course, we have to ensure that those units are coming on that are really attractive terms and the shifts that we did in 2020 towards capital light deals, meaning that property owners or funding. The capex dollars that go into making a property as saundra property.
That really really helps shorten the payback periods when we add while the units it makes that growth free cash flow accretive extremely rapidly.
The company level.
Then the third piece the third piece is ensuring continued leverage of our other opex and the net capex.
That's just.
2021, we've managed to grow those line items substantially more slowly than we did revenue and so we're very.
We have we have we apply a lot of scrutiny towards these numbers to ensure that we continue to benefit from some really attractive overhead leverage. So these three things are really coming together for us too.
Wow us to March on a path to free cash flow positivity as rapidly as possible.
Thank you Frances Thank you so much.
Thank you. Our next question comes from Stephen Grambling of Goldman Sachs. Please go ahead.
Hey, thanks for taking the questions.
In our Investor conversations it seems like there's just a lot more fear about recession around the corner and I know you had some comments in the deck on this but.
And essentially you are in the process of recovery, but how do you think about sensitizing the model to a recession scenario and also ensuring that you have the right liquidity.
<unk> of such a scenario and prolonged cash burn.
Thanks, a lot of people for the question totally understand it I appreciate you sharing that investor feedback, it's no surprise to us as it is on People's minds, obviously, it's in the headlines.
Needless to say, we think along with that while we have no crystal ball and we can't make predictions about the macro environment. We do think a lot about this and frankly, it's been in our DNA since long before Covid and long before the pandemic those that newest back in 2019 knew that we were running every recession scenario through our models and our forecast.
We even had a model where you could dropdown in select with recession scenario, you want to run 2001, 2008 or et cetera.
And run that through our forecast depending on when you thought it would start obviously the pandemic was deeper and more prolonged impact on travel than any of those other recession versus most of those impressions combined and so we feel like we've already been through.
An event called the pandemic that was orders of magnitude greater than any recession on record and we think that we learned a lot we learned how to keep occupancy elevated even when our travel competitors or hospitality competitors were not able to we learned how to be incredibly disciplined on the cost side, we learned how to.
<unk> navigated now hustle, our competitive our competitors are doing et cetera and.
And so those lessons I think remained with us and will apply to how we might think about future recession that said, it's really important to remember that.
Our forward looking outlook for the summer is incredibly robust and whether you're looking at sequentially or year over year, even if.
The macro somewhat dampened the rate of recovery the rate of recovery by all accounts and everything that we see today remains incredibly strong and we're incredibly excited about macro being a big tailwind to our performance for the foreseeable future regardless of what happens in the macro.
That's helpful. Maybe one related follow up can you remind us is there any covenants or liquidity requirements with your debt.
So I didn't answer the liquidity part of your question. So we've got.
We closed Q1 with over $400 million of.
Cash in the bank until we feel like we have.
More than ample liquidity and no concerns around the covenants and the like with respect to.
With respect to that.
Our liquidity outlook and so we feel really good about having the cash on the sheet to fund the plan be able to invest in the business and drive very attractive growth.
Awesome, Thanks ill jump back in the queue.
Thank you Steve.
Thank you. Our next question comes from Andrew Boone of JMP Securities. Please go ahead.
Hi, guys, Matt on for <unk>, just two quick for me can you just help break down the ADR improvement year over year in the quarter, how much of that was market driven and how much of that was your revenue management and then secondly, just on the higher occupancy strategy can you just talk about what led you to make this decision and how it relates to the model going forward and how we should.
Think about that thanks.
Yes.
Yes, so I'll take the first part of that question around <unk>.
As Francis mentioned earlier Smith travel research projects at 39% year on year Revpar growth for 2022.
When we look at our comps urban upper upscale hotels in North America.
Q1 of 2022 was about 72% of cumulative 19, so significant headroom significantly outlook for additional market growth.
Our revpar growth was even more robust than anything that you would look at when you look at kind of market metrics are at 52% year on year growth in Q1.
And so.
The punch line is we think that we outperformed market.
And that it was.
Now of course, Q1 still had a significant impact and Q1 is a seasonally slower quarter in typical years take 2019 before the pandemic Q1 was about a 15% discount to the full year 2019, Revpar and so overall Q2 and Q3 those are our strongest quarters and so we're really excited about getting into the.
The meat of the year here, both because of seasonality as well as the abating of pandemic restrictions, meaning a big snapback in travel and keep in mind that all of that.
Lift if you will and Revpar.
Through to the bottom line.
The margin impacts are also exciting as well on top of above and beyond just the Revpar index.
Yes, let me let me jump in here for the occupancy.
Lift and our strategy to pursue a higher occupancy rate. So we launched this in mid Q1 of 'twenty two to drive incremental revenue and free cash flow. So we're very careful in ensuring that we don't just sell rooms for their own sake, but we're.
Carefully take into account the fact that higher occupancy means more cost to serve and ensuring that the revpar regenerate is an excess of the incremental cost required to serve this incremental occupancy so.
There is the massive let us say that decision is simply the fact that we ran some some sophisticated demand elasticity studies to try to identify what are some areas in which we might be able to improve revpar by fluctuating price and improving our occupancy rates and we saw that quite a lot of value can be generated at that way.
Another value driver of the strategies that we can.
Extend the booking window, and so start generating bookings for future in advance and which has cash flow benefits and.
Allows us to.
Our pricing strategy with better forward looking visibility into demand patterns.
And incentivising longer longer stays as well so with a higher occupancy rate strategy, our pricing is a little bit more attractive for states that are that are longer.
Is there something that's an innovation that saundra capacity the price not just based on Tonight, but having a continuous discount curve that applies based on length of stay and the discount curve that is a function of what we expect demand to look like for these length of stay durations and what we expect our cost structure structure. It would be like for the length of stay duration. So it's it really is.
Interesting.
<unk>.
What I consider to be a strength for cylinder. So very excited about our initial results right in Q1, 73%, which was 700 basis points improvement year over year and very strong traction into Q2.
Great. Thank you.
Thank you at this time I'd like to turn the call back over to for instance, Davidson for closing remarks, Sir.
Yeah, well, thanks, so much everyone for dialing in and listening to our call today, we've got some really interesting important things.
That we've outlined in our shareholder letter.
I'd start with the CEO letter in the first couple of pages that kind of breaks down some of the themes that we discussed today in further detail. So really encourage you to go and take a look and thank you. So much for for your engagement and we look forward to speaking to some of you in future investor conferences. Thank you so much.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Yes.
Hum.
In terms of.
[music].