Q3 2022 Sonder Holdings Inc Earnings Call
Good day, and thank you for standing by and welcome to <unk> holding Inc. Third quarter 2022 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you'll need to press star one one on your telephone.
Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today John Charbonneau.
Vice President of.
<unk> Investor Relations you may begin.
Thank you operator, good afternoon, ladies and gentlemen, thank you for joining us to discuss <unk> third.
Third quarter 2022 financial results.
Joining me on the call today are Francis Davidson co founder and CEO , and Sanjay banker, President and CFO both.
Full details of our resolve and additional management commentary are.
Payable and our third quarter 2022 shareholder letter, which can be found on the Investor Relations section of our website at investor.
<unk> Dot Thunder Dot 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 sander strategies market opportunities and future financial and operating results.
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 SEC.
<unk>.
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 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 will turn the call over to Francis Davidson <unk> co founder and CEO .
Thanks, John Good afternoon, everyone and thank you for joining us today I am happy to report on our strong third quarter 2022 results. Our remarks today, we will cover three areas first I'll provide a quick overview of our financial performance second I will provide an update on our cash flow positive plan announced on June nine and third I'll provide a couple of quick update on our board.
We're excited to report strong third quarter results highlighted by sequential improvement in free cash flow before onetime restructuring costs to negative $39 million versus negative $45 million for the previous quarter.
Scf margin also improved reaching negative 31% compared to a negative 37% in the second quarter of 2022 and <unk>.
66% in third quarter of 2021.
The sequential improvement was driven by continued improvements in our cost base.
Got muted by an expected sequential decline in Revpar on.
On a year over year basis, our revpar grew by 25% to $158 and revenue grew by 85% to $125 million.
Sanjay will provide additional detail on our third quarter financial performance a little later on in the call.
To provide an update on the progress of our cash flow positive plan, which includes four key levers for.
First lever is to reduce cash cost by approximately $85 million on an annualized basis before onetime restructuring costs. This includes a restructuring plan. We began executing in June which will result in nearly $55 million in annualized cost savings versus Q1 2022 costs.
We expect to largely see the run rate benefit of these cost savings in 2023.
Also includes $30 million in expected annualized cash cost savings from reduced pre opening costs and net capex associated with incremental units going live given our focus on buying 100% capital light unit going forward.
So the second lever is proactively reducing our planned findings pace with growth in the near term primarily driven by opening previously contracted units. As a reminder, this enabled us to lower head count growth across the board lower Preopening cost and net capex cut back on planned geographic expansion and simplify the business this will likely.
Result in lower quarterly new signings versus what was planned prior to the cash flow positive plan as it did in the third quarter.
Additionally, we believe findings are impacted by continued macro uncertainty. This is impacting real estate developers given the substantial increase in interest rates this year, especially in the U S and development cost uncertainty at.
At the same time, even if we find no additional unit or saw no incremental revpar improvements the embedded supply growth from our previously contracted units that are expected to go live over time implies an approximate doubling of revenue in the coming years.
This brings me to our third lever, which is increasing our already high threshold for incremental unit findings by only targeting 100% capital light deals.
We're pleased to report the vast majority of Q3 <unk> deal met this more stringent criteria and the goal is to achieve a 100% in the fourth quarter.
Our fourth and final lever is focusing efforts on improving free cash flow through rapid payback revpar initiatives, given our fixed landlord payments a small increase in revpar translates to a much larger increase in cash contribution margin. As a result, we remain focused on several rapid payback revpar initiatives, including growing our new corporate travel offering.
We ended Q3 with approximately 600 accounts versus 400 last quarter and 100 in Q4 of 2021.
We're still in the early stages of our corporate travel offering we've gained traction each quarter since its launch and we're incredibly excited about this as an opportunity to drive incremental Revpar. We also remain focused on building out several ancillary revenue offerings, which we believe will further benefit revpar in 2023 and beyond.
To summarize we remain committed to reaching positive quarterly free cash flow within 2023 without additional fundraising and while preserving a robust cash cushion.
Before turning the call over to Sanjay I'd like to highlight a few very exciting recent additions to our board of directors.
Few weeks ago, we announced that Sean Agarwal has joined the board. John is currently the chair of the board of director that lift and brings a deep understanding of both the real estate and technology sectors.
In August we also added <unk> to our board Michel served as the CEO of CWT, one of the world's largest travel management platform, providing business travel meetings and event management for some of the world's biggest global companies.
Believe michelle's wealth of experience in the travel industry will bring strong contributions to our future development at the global hospitality leader.
And finally, we recently announced that Sanjay will transition from his role as president and CFO to join the board at the beginning of next year.
And as Thomas President and CFO over the past four years Sanjay provided critical leadership for the company led us through multiple rounds of funding helped stabilize and navigate the business through the Covid pandemic and also led a successful public listing earlier this year.
I believe his wealth of knowledge on our strategy and operations will make a huge asset to the board.
I also couldn't be more excited about the level of talent industry expertise and public company experience, we've assembled on our board.
Separately, we've launched a formal search process for the next CFO and Sanjay It will continue to remain in the role through the end of the year to ensure an orderly transition and support.
A new CFO .
In closing our focus remains on the execution of our capsule positive plan to drive sustainable long term value for all our shareholders and continue to reputation I hospitality with that I will turn over the call to president and CFO funded banker to provide you with further details on our recent financial performance and an update on our guidance.
Thank you Frances and Hello, everyone.
Like to start by saying, what a great privilege, it's been to service Saunders President and CFO over the past four years.
I have great confidence in the company our plan and our team.
I look forward to joining the board and continuing to work with management in 2023 as a senior advisor to support the execution of the company's strategic plan.
With that said I will first provide a brief overview of our third quarter financial results and then we'll share our guidance for the remainder of 2022, we will then open the call to questions.
Unless otherwise specified all of the Q3 growth figures cited in my remarks, our year over year comparisons.
In the third quarter, we generated $125 million of revenue, representing an 85% increase compared to Q3 2021.
Our Q3 revenue growth year over year was driven by our life portfolio growing 43% and revpar growing 25%.
Again, this quarter key performance metrics improved year over year, including live units Bookable nights occupied nights and Revpar.
We ended the quarter with approximately 9000 live units, representing 43% growth driven by the conversion of contracted units into live units.
This included the opening of business Bay in Dubai, which will be our largest property ever and approximately 400 units.
In Q3, we had over 786000 Bookable mix, an increase of 47% driven by this slide the unit growth.
At quarter end, we had over 18900 units in our total portfolio, representing 17% year over year growth.
Revpar in the third quarter was $158 up 25% year over year.
And ADR grew 3% to 189, driven by continued market recovery.
Our occupancy further increased to 84% up 1600 basis points year over year.
That said I would remind everyone. We are continually trying to strike the right balance between demand and rate.
And therefore, we view occupancy is more of an output of this revpar optimization effort.
Other than a goal in and of itself.
Looking ahead, we expect our revpar to continue benefiting from the recovery of urban travel with third party forecasters as of September 30, anticipating full market recovery back to 2019 levels in mid 2023.
Total costs and operating expenses increased by 51% to $186 million when comparing Q3 2022 to Q3 2021 inclusive of $6 million of stock based compensation expense in the quarter.
This increase in total costs and operating expenses were driven primarily by the expansion of our live units.
As we noted in conjunction with the cash flow positive plan announcement in June we are focused on free cash flow as our primary measure of financial performance.
Metric aligns with how we view and manage our business internally.
In the third quarter free cash flow before one time restructuring costs totaled negative $39 million compared to negative $45 million last quarter and negative $45 million a year ago.
Free cash flow margin also improved reaching negative 31% compared to negative 37% in the second quarter of 2022 and negative 66% in the third quarter of 2021.
The sequential improvement was driven by continued improvement in our cost base.
Somewhat muted by an expected sequential decline in Revpar.
Moving on I would like to highlight cash contribution margin, which is the unit economics metric that measures property level performance by excluding corporate and other non property level cost.
This enables us to assess the cash performance of our live property portfolio taking into account the benefit of upfront rent abatements, which is typical in the deals we signed.
In the third quarter cash contribution margins were 22%.
Versus 18% in the second quarter, and 5% a year ago.
<unk> <unk> unit economics equation is strong and improving.
Our goal are to continue expanding these unit level cash contribution margins.
As well as increasing the size of our life portfolio to cover non unit costs and drive the overall profitability.
Free cash flow and cash contribution margin are the primary non-GAAP financial measures, we will focus on publicly moving forward.
As a result, we will not provide the reconciliations of property level profit and adjusted EBITDA within our shareholder letter after reporting fourth quarter 2022 results.
Turning to the balance sheet as of September 32022, we had $318 million in cash and 160 <unk>.
In total debt.
Regarding guidance for 2022, we expect revenue of better than $455 million.
Representing more than 95% year over year growth and better than $129 million for the fourth quarter.
I would point out we are again facing notable FX headwinds in the fourth quarter relative to the exchange rates assumed when our previous 2020 to annual revenue guidance of 100% to 110% year over year growth.
First introduced eight months ago.
At the same time without overstating the magnitude of this we've seen some incremental delay in contracted units being converted to live units.
She has had some impact on our expectations for Bookable nights in the fourth quarter relative to previous estimates.
For the second half of the year Q3, and Q4 combined.
We are reaffirming free cash flow are better than negative $70 million before restructuring costs, which implies better than negative $31 million in the fourth quarter.
As Francis noted earlier, we remain focused.
On reaching positive quarterly free cash flow within 2023.
And as a reminder, this.
Same as past quarters, our guidance is based on our best knowledge available from internal data and third party forecasters and does not contemplate an extreme slowdown in demand.
I would also like to call out that starting next quarter and for 2023, we will no longer be providing annual guidance, but will instead be providing revenue and free cash flow guidance for the following quarter.
I'll close our prepared remarks today by reiterating that our business fundamentals remained strong and we believe our market opportunity is enormous.
We are focused on driving sustainable long term value for all of our stakeholders via our cash flow positive plan and continuing to revolutionize hospitality for all.
While I will be transitioning out of my current role with stronger at the end of the year.
Want to reiterate the confidence I have in our business.
I look forward to joining the board in January and continuing to partner with management to make Saunders vision of a better traveled world a reality.
We're now happy to take your questions operator.
And thank you.
As a reminder to ask a question you will need to press star one on your telephone please.
Please standby will be compile the Q&A roster.
And one moment for our first question.
And our first question comes from Jed Kelly from Oppenheimer <unk> Company. Your line is now open.
Hey, Thanks for taking my question and Hey, Sanjay good good good luck with everything with what you do in the future.
For I guess my question is just on the guidance you called out.
I guess number one are you seeing anything with the macro or is this the Revpar guide.
I guess sort of just all FX related and then.
Number two can you just kind of touch on where you are in the current supply ramp it.
They are coming on slower than you initially thought.
Where do you think you are sort of in the guide widening of your supply where you start to get better visibility on that thanks.
Yes, Thanks, Jed first of all thanks for your question and thank you for the kind words.
I'll take the first part of the question around the revenue guidance.
<unk> for the question about the supply ramp.
Yes, as you pointed out and as we said in the.
Opening remarks.
The drivers of the revenue guide or the FX commentary, we provided around the fact that FX has just moved against us.
We set.
Full year guide originally back in February of 100% to 110%.
And then we'd be affirmed in August but.
FX has been a headwind through most of the year, but especially in the period.
In the last few months and so we step back and look at the impact of FX overall for the year, It's a mid to high single digit millions of dollars revenue impact to us so.
So that is a big driver is not the only driver we did mentioned that looking into Q4.
There remains some incremental pressure on Bookable nights.
We discussed previously the timing issue in terms of.
The timeline for <unk>.
Confirm signed known projects to be handed over.
Bookable nice will be up sequentially for Q4 of course, but not as much as we had been expecting recently.
So let me put all that together.
Without giving explicit guidance.
Around sort of the decomposition.
What's informing our revenue guide, it's not to be clear a macro issue, but really about FX and the timing.
Yes, let me jump in here for the second part of your question.
On <unk> unit so.
Just as a reminder, the focus really for the business. If you take any one of the company you ask them. What is the thing that we should prioritize its really the cash flow positivity plan and seeing improvement in free cash flow.
So not a lot of units at 9000 is a 7% increase quarter over quarter, but a 43% increase year over year.
And there's natural variability quarter to quarter larger deals full buildings and so the focus for us remains on the year over year.
It is important also to note that there was a 110% embedded growth that will come from our contracted properties and that we have more properties that are contracted but not yet live then we have live units today and so we think that the growth picture in the several quarters to come remains exciting.
It's true that in the near term, we're seeing some supply chain labor challenges on the part of our developer partners right. As a reminder, we don't have saundra actually build those properties are responsible for renovations.
But rather lean on our partners in order to do that and they are faced with some some some challenges on the labor side that are leading some projects being delivered a little bit more slowly.
Then the timetable that they provided us theres a series of measures, though that we do control on our side in order to accelerate the timeline. It takes to open these properties for example.
Bulk orders, having enough inventory on the balance sheet.
Applying pressure on our partner's hiring training.
There are many things that we also don't control given that our developer partners are responsible for construction.
So we're still finding.
Interestingly, a good number of properties, but with the higher bar of course with the cash flow positive plan, ensuring that those are 100% capital light deals.
So the growth picture, especially given the quantity of properties are already signed remains really attractive in the several quarters to come.
And then follow up just can you give us an update on your revpar initiatives how is that trending.
Versus what you laid out in the past couple of calls thank you.
Absolutely so on the corporate travel side.
Which is an initiative that we launched in mid 2021 right to help bolster our weekday revpar performance. This grew to 600 corporate accounts and that was up from 400 in Q2, so really exciting rapid growth on that front and still early right.
In our journey to generate increasing quantities of.
The business corporate customers.
So that's one of the initiatives another really exciting one has been our high occupancy strategy, which we started implementing in Q1 right. After some really extensive elasticity testing that our data science team ran and so occupancy collection in Q3 at 84%, which is really really attractive and we manage to of course maintain attractive ADR as well and so the revpar numbers that that ensued were.
Drove the cash contribution margin in the <unk>.
<unk> and the margin profile of the business and the economics of the business that we're seeking.
Also other improvement that we've seen when it comes to our revenue management a series of initiatives on ancillary revenue that that we're that we're rolling out so the things that we've been discussing all year are kind of starting to land and generate.
Meaningful results that are helping us bolster our demand.
Thank you.
And thank you.
And one moment for our next question.
And our next question comes from Nick Jones from JMP Securities. Your line is now open.
Great. Thanks for taking the questions I guess.
On Rev Pars, and then I guess.
As to your free cash flow goals for next year.
I think theres kind of increasing fares that ADR and Revpar is may come under pressure next year as macro worsens.
How does that impact kind of the free cash flow goals and how are you thinking about kind of ADR and revpar is heading into next year, and I guess kind of where salaries.
<unk> to kind of still hit the goals kind of.
Regardless of the.
Kind of our Cogs next year or are there scenarios, where it could kind of delay the free cash flow.
Cool.
Yes, so I'll start and frankly should jump in if I Miss something.
The way, we think about just as a level set and as a reminder, Nic business.
Thing.
The way, we build our forecast is to leverage the best available third party information that we have so we rely on third party forecasters that STR CBRE and.
And the macroeconomic what they do to develop revpar forecast on a city by city basis, and we then roll that up based on our unit mix and our property mix our portfolio mix, our anticipated mix in order to.
Come up with a macro view against which we then overlay our.
Revpar improvement initiatives et cetera. So that's how we come up with a forecast as of now those forecasts do not contemplate an extreme slowdown in consumer demand and so from our perspective.
We build our base case forecast around that leveraging that third party input of course.
There is a major macro event that is one of the scenarios that we have to test.
All manner of scenarios incentivize our forecast to make sure that no matter what happens in the macro that we have ample cash and.
Liquidity to get to our free cash flow goal overtime with no incremental fundraising needs and so just to reiterate our entire plan is built around the idea that we can be self reliant.
Had no need for incremental funding, even if there is a macro downturn in order to be able to get to free cash flow over time. So of course will be affected by whatever the macro is but our base case you today is that that is.
Not taking into account any slowdown in demand.
France has got it.
Sorry go ahead Nick.
Okay. Thanks.
Great. Thank you and then I know corporate travel has kind of been a focus.
<unk> seen more and more announcements around layoffs.
The reductions in force I mean is there is that showing up is that becoming a little more difficult to kind of get corporate travel as I guess corporates are scrutinizing.
<unk> expenses.
Okay.
The.
Perhaps is here to answer the question. So there is a very low baseline right and Saunders P&L of business travel mix.
Like I mentioned earlier on the corporate travel program was launched in mid 2021 and in Q1.
We had I think we closed Q1 with 250 accounts, we had 100 in Q4 shortly after the launch of 2021 so.
The baseline is really low and so to us as well.
We're adding these kind of corporate accounts hopefully a much more rapid speed then there would be any contraction of overall overall demand that could be kind of a net gain for us. So this is how we see the opportunity is that theres enormous white space for our business.
To generate corporate travel and we're really just getting started here. We're also taking a multiyear view when it comes to the returns on these initiatives in that.
Theres kind of a land and expand strategy. We have all these corporate accounts that are signed but then getting an increasing share of wallet is also an important initiatives. So our teams are working diligently to kind of make sure that we capture as much of that demand as possible and it's increasing.
Mix shift of our revenue as they are lending more corporate accounts and getting a greater share of their spend.
Okay. Thanks for answering the questions.
Okay.
And thank you.
And I am showing no further questions.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
[music].
Good day, and thank you for standing by and welcome to <unk> holding Inc. Third quarter 2022 earnings call at.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today John Charbonneau.
Vice President.
Investor Relations you may begin.
Thank you operator, good afternoon, ladies and gentlemen, thank you for joining us to discuss <unk> third 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 third quarter 2022 shareholder letter, which can be found on the Investor Relations section of our website at investors that Thunder Dot com before we start I'd like to remind you that the <unk>.
Following discussion in the Q&A session at the end of this call contains forward looking statements, including but not limited to sander strategies market opportunities and future financial and operating results that involve risks and uncertainties that may cause actual results to differ materially.
Really 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 <unk> 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 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 <unk> co founder and CEO .
Thanks, John Good afternoon, everyone and thank you for joining us today I'm happy to report on our strong third quarter 2022 results. Our remarks today will cover three areas first I'll provide a quick overview of our financial performance second I will provide an update on our cash flow positive plan announced on June nine and third I'll provide a couple of quick update on our board.
We're excited to report strong third quarter results highlighted by sequential improvement in free cash flow before onetime restructuring cost to negative $39 million versus negative $45 million for the previous quarter.
Scf margin also improved reaching negative 31% compared to a negative 37% in the second quarter of 2022 and negative 66% in third quarter of 2021.
The sequential improvement was driven by continued improvements in our cost base.
Somewhat muted by an expected sequential decline in Revpar.
On a year over year basis, our revpar grew by 25% to $158 and revenue grew by 85% to 125 billion.
Sanjay will provide additional detail on our third quarter financial performance a little later on in the call.
Now I'd like to provide an update on the progress of our cash flow positive plan, which includes four key levers. The first lever is to reduce cash cost by approximately $85 million on an annualized basis before one time restructuring costs. This includes a restructuring plan. We began executing in June which will result in nearly $55 million in annualized cost savings versus Q1.
22 call, we expect to largely see the run rate benefit of these cost savings in 2023.
Also includes $30 million in expected annualized cash cost savings from reduced pre opening costs and net capex associated with incremental units going live given our focus on finding 100% capital light units going forward.
So the second lever is proactively reducing our planned findings pace with growth in the near term primarily driven by opening previously contracted units. As a reminder, this enables us to lower head count growth across the board lower Preopening cost net capex cut back on plant geographic expansion and simplify the business this will likely.
Our result in lower quarterly new signings versus what was planned prior to the cash flow positive plan as it did in the third quarter.
Additionally, we believe findings are impacted by continued macro uncertainty. This is impacting real estate developers given the substantial increase in interest rates this year, especially in the U S and development cost uncertainty at.
At the same time, even if we find no additional unit or saw no incremental revpar improvements the embedded supply growth from our previously contracted units that are expected to go live over time implies an approximate doubling of revenue in the coming years.
This brings me to our third lever, which is increasing our already high threshold for incremental unit findings by only targeting 100% capital light deals we're.
We're pleased to report the vast majority of Q3 <unk> deal met this more stringent criteria and the goal is to achieve 100% in the fourth quarter.
Our fourth and final lever is focusing efforts on improving free cash flow through rapid payback revpar initiatives, given our fixed landlord payments a small increase in revpar translates to a much larger increase in cash contribution margin. As a result, we remain focused on several rapid payback revpar initiatives, including growing our new corporate travel offering.
We ended Q3 with approximately 600 accounts versus 400 last quarter and 100 in Q4 of 2021.
We're still in the early stages of our corporate travel offering we've gained traction each quarter since its launch and we're incredibly excited about this as an opportunity to drive incremental Revpar. We also remain focused on building out several ancillary revenue offerings, which we believe will further benefit revpar in 2023 and beyond.
To summarize we remain committed to reaching positive quarterly free cash flow within 2023 without additional fundraising and while preserving a robust cash Christian.
Before turning the call over to Sanjay I'd like to highlight a few very exciting recent additions to our board of directors.
Few weeks ago, we announced that Shawn Agarwal has joined the board Shawn is currently the chair of the board of director that lift and brings a deep understanding of both the real estate and technology sectors.
In August we also added <unk> to our board Michel served as the CEO of CWT, one of the world's largest travel management platform, providing business travel meetings and event management for some of the world's biggest global companies we have.
Believe michelle's wealth of experience in the travel industry will bring strong contributions to our future development at the global hospitality leader.
And finally, we recently announced that Sanjay will transition from his role as president and CFO to join the board at the beginning of next year and his time as president and CFO over the past four years Sanjay provided critical leadership for the company led us through multiple rounds of funding helped stabilize and navigate the business through the Covid pandemic and also led a successful public listing earlier this year.
I believe his wealth of knowledge on our strategy and operations will make a huge asset to the board.
Also couldn't be more excited about the level of talent industry expertise and public company experience, we've assembled on our board.
Separately, we've launched a formal search process for the next CFO and Sanjay will continue to remain in the role through the end of the year to ensure an orderly transition and the port.
<unk> CFO .
In closing our focus remains on the execution of our capsule positive plan to drive sustainable long term value for all our shareholders and continue to revolutionize hospitality with that I will turn over the call to present and CFO Sunday banker to provide you with further details on our recent financial performance and an update on our guidance.
Thank you Frances and Hello, everyone.
I'd like to start by saying, what a great privilege, it's been to service Saunders President and CFO over the past four years.
I have great confidence in the company our plan and our team.
I look forward to joining the board and continuing to work with management in 2023 as a senior advisor to support the execution of the company's strategic plan.
With that said I will first provide a brief overview of our third quarter financial results and then we'll share our guidance for the remainder of 2022, we will then open the call to questions.
Unless otherwise specified all of the Q3 growth figures cited in my remarks, our year over year comparisons.
In the third quarter, we generated $125 million of revenue, representing an 85% increase compared to Q3 2021.
Our Q3 revenue growth year over year was driven by our life portfolio growing 43% and revpar growing 25%.
Again, this quarter key performance metrics improved year over year, including live units Bookable nights occupied nights and Revpar.
We ended the quarter with approximately 9000 lives units, representing 43% growth driven by the conversion of contracted units into live units.
This included the opening of the business day in Dubai, which will be our largest property ever at approximately 400 units.
In Q3.
Over 786000, Bookable Nikes, an increase of 47% driven by this live unit growth.
At quarter end, we had over 18900 units in our total portfolio, representing 17% year over year growth.
Revpar in the third quarter was $158 up 25% year over year.
And ADR grew 3% to $189 driven by continued market recovery.
Our occupancy further increased to 84% up 1600 basis points year over year.
That said I would remind everyone. We are continually trying to strike the right balance between demand and rate.
And therefore, we view occupancy is more of an output of this revpar optimization effort.
Other than a goal in and of itself.
Looking ahead, we expect our Revpar is to continue benefiting from the recovery of urban travel with third party forecasters as of September 30, anticipating full market recovery back to 2019 levels in mid 2023.
Total costs and operating expenses increased by 51% to $186 million when comparing Q3 2022 to Q3 2021 inclusive of $6 million of stock based compensation expense in the quarter.
This increase in total costs and operating expenses were driven primarily by the expansion of our live units.
As we noted in conjunction with the cash flow positive plan announcement in June we are focused on free cash flow as our primary measure of financial performance.
Metric aligns with how we view and manage our business internally.
In the third quarter free cash flow before onetime restructuring costs totaled negative $39 million compared to negative 45 million last quarter and negative $45 million a year ago.
Free cash flow margin also improved reaching negative 31% compared to negative 37% in the second quarter of 2022 and negative 66% in the third quarter of 2021.
The sequential improvement was driven by continued improvement in our cost base.
Somewhat muted by an expected sequential decline in Revpar.
Moving on I would like to highlight cash contribution margin, which is the unit economics metric that measures property level performance by excluding corporate and other non property level costs.
This enables us to assess the cash performance of our live property portfolio taking into account the benefit of upfront rent abatements, which is typical in the deals we signed.
In the third quarter cash contribution margins were 22%.
Versus 18% in the second quarter, and 5% a year ago.
Inventory hitting Saunders unit economics equation is strong and improving.
Our goal are to continue expanding these unit level cash contribution margins.
As well as increasing the size of our life portfolio to cover non unit costs and drive overall profitability.
Free cash flow and cash contribution margin are the primary non-GAAP financial measures, we will focus on publicly moving forward.
As a result, we will not provide the reconciliations of property level profit and adjusted EBITDA within our shareholder letter after reporting fourth quarter 2022 results.
Turning to the balance sheet as of September 32022, we had $318 million in cash and 160.
In total debt.
<unk> guidance for 2022, we expect revenue of better than $455 million.
Representing more than 95% year over year growth.
Other than $129 million for the fourth quarter.
I would point out we are again facing notable FX headwinds in the fourth quarter relative to the exchange rates assumed when our previous 2020 to annual revenue guidance of 100% to 110% year over year growth was first introduced eight months ago.
At the same time without overstating the magnitude of this we've seen some incremental delay in contracted units being converted to live units, which has had some impact on our expectations for Bookable nights in the fourth quarter relative to previous estimates.
For the second half of the year Q3, and Q4 combined.
We are reaffirming free cash flow are better than negative $70 million before restructuring costs, which implies better than negative $31 million in the fourth quarter.
As Francis noted earlier, we remained focused on.
On reaching positive quarterly free cash flow within 2023.
And as a reminder, the.
The same as past quarters, our guidance is based on our best knowledge available from internal data and third party forecasters and does not contemplate an extreme slowdown in demand.
I would also like to call out that starting next quarter and for 2023, we will no longer be providing annual guidance, but will instead be providing revenue and free cash flow guidance for the following quarter.
I'll close our prepared remarks today by reiterating that our business fundamentals remained strong and we believe our market opportunity is enormous.
We are focused on driving sustainable long term value for all of our stakeholders via our cash flow positive plan and continuing to revolutionize hospitality for all.
While I will be transitioning out of my current role with Thunder at the end of the year.
I want to reiterate the confidence I have in our business.
I look forward to joining the board in January and continuing to partner with management to make Saunders vision of a better traveled world a reality.
We're now happy to take your questions operator.
And thank you.
As a reminder to ask a question you will need to press star one on your telephone please.
Please standby will compile the Q&A roster.
And one moment for our first question.
And our first question comes from Jed Kelly from Oppenheimer <unk> Company. Your line is now open.
Hey, Thanks for taking my question and Hey, Sanjay good good good luck with everything.
You do in the future.
For I guess my question is just on the guidance you called out.
I guess number one are you seeing anything with the macro or is this the Revpar guide.
I guess sort of just all FX related and then.
Number two can you just kind of touch on where you are in the current supply ramp and Ted.
They are coming on slower than you initially thought.
Where do you think you are sort of in the guide widening of your supply where you start to get better visibility on that thanks.
Yes, Thanks, Jed first of all thanks for your question and thank you for the kind words.
I'll take the first part of the question around the revenue guidance.
And to <unk> point.
Question about the supply ramp.
Yes.
You pointed out and as I said it in the.
Opening remarks.
The drivers of the revenue guide or the FX commentary, we provided around the fact that FX has just moved against us.
We set that.
Full year guide originally back in February of 100% to 110%.
And then we reaffirmed it in August but.
FX has been a headwind through most of the year, but especially in the period.
In the last few months and so we stepped back and we look at the impact of FX overall for the year at the mid to high single digit millions of dollars revenue impact to us so.
So that is a big driver is not the only driver we did mentioned that looking into Q4.
There remains some incremental pressure on Bookable night.
We discussed previously the timing issue in terms of.
The timeline for <unk>.
Confirm sign known projects to be handed over.
Bookable nice will be up sequentially for Q4 of course, but not as much as we had been expecting recently.
So when you put all that together.
Without giving explicit guidance.
Around sort of the decomposition.
What's informing our revenue guide, it's not to be clear a macro issue, but really about FX and the timing.
Yes, let me jump in here for the second part of your question.
On <unk> so.
Just as a reminder, the focus really for the business. If you take any one of the company you ask them. What is the thing that we should prioritize its really the cash flow positivity plan and seeing improvement in free cash flow.
So not live units at 9000 is a 7% increase quarter over quarter, but a 43% increase year over year.
And there's natural variability quarter to quarter larger deals full buildings and so the focus for us remains on the year over year.
It's important also to note that there was a 110% embedded growth that will come from our contracted properties and that we have more properties that are contracted but not yet live then we have live units today and so we think that the growth picture in the several quarters to come remains exciting.
But it's true that in the near term, we're seeing some supply chain labor challenges on the part of our developer partners right. As a reminder, we don't let saundra actually build those properties are responsible for and renovations.
But rather lean on our partners in order to do that and they are faced with some some some challenges on on the labor side that are leading some projects being delivered a little bit more slowly.
Then the timetables that they provided us.
Theres a series of measures, though that we do control on our side in order to accelerate the timeline. It takes to open these properties for example.
All quarters, having enough inventory on the balance sheet.
Applying pressure on our partner's hiring training.
There are many things that we also don't control given that our developer partners are responsible for construction.
So we are still finding.
Interestingly, a good number of properties, but with a higher bar of course with the cash flow positive plan, ensuring that those are 100% capital light deals.
So the growth picture, especially given the quantity of properties are already signed remains really attractive in the several quarters to come.
And then follow up just can you give us an update on your revpar initiatives how is that trending.
Versus what you laid out in the past couple of calls thank you.
Absolutely so on the corporate travel side.
Which is and this initiative that we launched in mid 2021 right to help bolster our weekday revpar performance. This grew to 600 corporate accounts and that was up from 400 in Q2, so really exciting rapid growth on that front and still early right.
In our journey to generate increasing quantities of.
<unk>.
Business corporate customers.
That's one of the initiatives another really exciting one has been our high occupancy strategy, which we started implementing in Q1 right. After some really extensive elasticity testing that our data science team ran and so occupancy collected in Q3 at 84%, which is really really attractive and we manage to of course maintain attractive ADR as well and so the revpar numbers that that ensued were.
Drove the cash contribution margin in the <unk>.
<unk> and the margin profile of the business and the economics of the business that we're seeking.
There is also other improvement that we've seen when it comes to our revenue management a series of initiatives on ancillary revenue that that we're that we're rolling out so the things that we've been discussing all year are kind of starting to land and generate.
Meaningful results that are helping us bolster our demand.
Thank you.
And thank you.
And one moment our next question.
And our next question comes from Nick Jones from JMP Securities. Your line is now open.
Great. Thanks for taking the questions I guess on.
On Rev Pars, and then I guess.
As to your free cash flow goals for next year.
I think theres kind of increasing fares that ADR and Revpar is may come under pressure next year as macro worsens, how does that impact kind of the free cash flow goals and how are you thinking about kind of ADR and revpar is heading into next year, and I guess kind of where salaries positioned to kind of still hit the goals kind of.
Regardless of the.
Kind of our Cogs next year or are there scenarios, where it could kind of delay the free cash flow.
Cool.
Yes, so I'll start and frankly should jump in if I Miss something.
The way, we think about just as a level set and as a reminder, Nick.
Thing.
The way, we build our forecast is to leverage the best available third party information that we have so we rely on third party forecasters that STR CBRE and.
And the macroeconomic work they do to develop Revpar forecast on a city by city basis, and we then roll that up based on our unit mix and our property mix our portfolio mix, our anticipated mix in order to.
Come up with a macro view against which we then overlay our.
Our improvement initiatives et cetera, and so that's how we come up with a forecast as of now those forecasts do not contemplate an extreme slowdown in consumer demand and so from our perspective.
We build our base case forecast around that leveraging that third party input of course.
There is a major macro event that is one of the scenarios that we have to test.
All manner of scenarios and sensitize, our forecast to make sure that no matter what happens in the macro that we have ample cash and.
Liquidity to get to our free cash flow goal overtime with no incremental fundraising needs and so just to reiterate our entire plan is built around the idea that we can be self reliant.
Have no need for incremental funding, even if there is a macro downturn in order to be able to get to free cash flow over time. So of course, it will be affected by whatever the macro is but our base case you today is that that is.
Not taking into account any slowdown in demand.
France has got it and then.
Sorry go ahead Nick.
Okay. Thanks.
Great. Thank you and then I know corporate travel has kind of been a focus.
We've seen more and more announcements around layoffs there.
Reductions in force I mean is there is that showing up is that becoming a little more difficult to kind of get corporate travel as I guess corporates are scrutinizing.
<unk> expenses.
The practice.
Perhaps this year that answer the question. So there is a very low baseline right and Saunders P&L of business travel mix.
Like I mentioned earlier on the corporate travel program was launched in mid 2021.
In Q1.
We had I think we closed Q1 with 250 accounts, we had 100 in Q4 shortly after the launch of 2021.
The baseline is really low and so to us as we're adding these kind of corporate accounts and hopefully a much more rapid speed then there would be any contraction of overall overall demand that could be kind of a net gain for us. So this is how we see the opportunity is that theres enormous white space for our business.
To generate corporate travel and we're really just getting started here. We're also taking a multiyear view when it comes to the returns on these initiatives in that.
It's kind of a land and expand strategy. We have all these corporate accounts that are signed but then getting an increasing share of wallet is also an important initiatives. So our teams are working diligently to kind of make sure that we capture as much of that demand as possible and thats increasing.
Mixed shift of our revenue is theyre landing more corporate accounts and getting a greater share of their spend.
Okay. Thanks for answering the questions.
And thank you.
And I am showing no further questions.
And this concludes today's conference call. Thank you for participating you may now disconnect.