Q4 2022 Sonder Holdings Inc Earnings Call
Speaker 2: Good day and thank you for standing by and welcome to Sundar's fourth quarter 2022 financial results. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask questions during the session you will need to press star 1 1 on your telephone.
Speaker 2: You will then hear an automated message advising your hand is raised. To withdraw your question, simply press star 1 1 again. Also the advice of today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Charbonneau, Vice President, Head of Investor Relations. Please go ahead.
Speaker 3: Thank you operator. Good afternoon. Ladies and gentlemen. Thank you for joining us to discuss Saunders 4th quarter 2022 financial results. Joining me on the call today are Francis Davidson, Co, founder and CEO . And Chris Berry, chief accounting officer.
Speaker 3: Full details of a result and additional management commentary are available in our fourth quarter 2022 Shareholder Letter, which can be found on the Investor Relations section of our website at investors.sonder.com. incredibly valuable chat
Speaker 3: 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, Sondra's strategies, market opportunities, and future financial and operating results.
Speaker 3: 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 statement.
Speaker 3: can be found in Saunders' SEC filings.
Speaker 3: The forward-looking statements and discussions of risks in this conference call, including responses to your questions, are based on current expectations as of today.
Speaker 3: SONDR 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 reconciliation of these non-GAAP financial measures, please read the following text.
Speaker 3: 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 . Thank you, John .
Speaker 4: Good afternoon, everyone, and thank you for joining us today.
Speaker 4: My remarks will cover two areas. First, a quick overview of our financial performance in the fourth quarter in 2022. And second, a brief overview of our key focus areas for the year. I'm encouraged by what we accomplished in 2022, especially considering a material shift in company strategy mid-year to focus on generating positive results.
Speaker 4: on cost in 2023 at the R.
Speaker 4: We also saw meaningful improvement in property level performance, enabling us to cut free cash flow burn in half over the course of 2022.
Speaker 4: These results reaffirm my conviction in our business model, and I believe that we are on a path to generating positive free cash flow. I would like to provide more details on the fourth quarter and 2022.
Speaker 4: Our fourth quarter results were highlighted by the third quarter in a row of free cash flow improvements to negative 30 million versus negative 39 million in the previous quarter and negative 62 million in the first quarter of 2022.
Speaker 4: This helped drive the significant improvement in SCF margin throughout the year, reaching negative 22% in the fourth quarter versus negative 77% in the first quarter.
Speaker 4: And cash contribution margin, which is the unit economic metric we use to measure property level performance, was 24 percent in the fourth quarter compared to 22 percent last quarter and 10 percent a year ago.
Speaker 4: over 30% year over year.
Speaker 4: While we lowered our cost structure, including our property-level cost drivers which improved over the course of the year.
Speaker 4: Together with high quality and capital-like property openings, this drove a sequential improvement in cash contribution margin in every quarter of 2022, enabling us to cut cash burn and improve SDF margins.
Speaker 4: As you can see, we've meaningfully improved our unit economics versus a year ago and exited 2022 with a better overhead cost structure while continuing to strive for further improvements including the ones I will speak about shortly.
Speaker 4: We believe this demonstrates that our business fundamentals have continued to improve and that we're executing against our cash flow positive plan.
Speaker 4: I'm also proud of our top line performance with 2022 revenue up approximately 100% year over year. Moreover, we generated 135 billion in revenue in the 4th quarter, which is over half a billion dollars on an annualized revenue basis. Everything 2022.
Speaker 4: I would like to provide a quick overview of our key focused areas for 2023, starting with our Juja Torio, in 2020.
Speaker 4: In 2022, we continued to expand our corporate business, which included, among other things, strengthening our position on GDS platforms and adding a significant amount of corporate travel accounts.
Speaker 4: This translated into approximately $70 million in the book's corporate sales in 2022, roughly 5x growth compared to 2021. This year, we plan to continue expanding into new industry segments and expect another year of strong growth within the corporate business, which will bolster weekday rough part in particular...
Speaker 4: and area that's still a lot above side.
Speaker 4: We're also doubling down on our elevated merchandising strategy with a re-imagined art direction and photography style which we have seen drive over 10% improvement in conversion rates across 10 pilot properties.
Speaker 4: We're excited to implement this in over 40 of our largest properties this year, which will represent over 50% in about life units.
Speaker 4: Next, on June 9th, we announced our Tashel Pogs of Plan, which shifted our focus from hyper growth to generating positive free cash flow more rapidly than previously planned.
Speaker 4: As a reminder, the shift in focus was not due to a lack of growth opportunities, but instead, because market conditions had changed, and we thought it was prudence to shift our strategy to adapt to the changing macro environment.
Speaker 4: As you can see from our fourth quarter results, we've continued to make meaningful progress against this plan. I'll let Christopher by details and guidance, but we'll note that our focus remains on reaching our first quarter of positive pretty fast flow in 2023.
Speaker 4: We've also continued to evaluate our cost structure, especially given ongoing macro uncertainty. As a result, we decided to reduce our overhead expense base, both across non-headcount and non-headcount stems, reducing approximately 100 corporate roles for 14% of our corporate workforce.
Speaker 4: which will lead to approximately 10 million in annualized cost savings, in addition to anticipated savings from non-headset reductions.
Speaker 4: We've done our best to support our departing colleagues with care, dignity and compassion, and are providing seven packages including benefits, continuation, and other support to system with transition.
Speaker 4: Another component of the cash flow positive plan has been to proactively reduce our plan finding pace.
Speaker 4: with growth in the near-term still being primarily driven by opening previously contracted units.
Speaker 4: And in the fourth quarter, LUD Units proved by 28% year-over-year driven by strong conversion from our contracted units to LUD Units. At the same time, we continued to see development cost uncertainty and augmented risk around financing. As a result, we felt there was prudence to exclude a number of contracted units with financing contingencies which drove the sequential decline within our total portfolio numbers. And in the fourth quarter, we continued to see development cost uncertainty and augmented risk around financing contingencies.
Speaker 4: Importantly, the vast majority of contracted units we excluded weren't expected to go live until 2025 or beyond and we expect limited impact to growth this year or even in 2024.
Speaker 4: separately we've made a lot of progress in the search for our next UFO and hope to have an update for you in the coming weeks.
Speaker 4: And closing, our focus remains on the execution of our classroom pauses plan to express a sustainable, long-term value for all shareholder's.
Speaker 4: I want to thank our employees, partners and guests, across the globe for choosing Stander and for their continued belief and support of our mission to revolutionize hospitality.
Speaker 4: With that, I'll turn the call over to our Chief Accounting Officer, Chris Berry, who will provide you with further details on a recent financial performance and an update to our guidance, Chris. Thank you, Francis, and hello, everyone. I will first provide a brief overview of our fourth quarter finance results, and then we'll share our guidance for the first quarter of 2023.
Speaker 4: Chief County Officer Chris Berry, who will provide you with further details on a recent financial performance and an update to our guidance, Chris. Thank you, Francis and hello everyone. I will first provide a brief overview of our fourth quarter financial results, and then we'll share our guidance for the first quarter of 2023. We'll then open the call to questions.
Speaker 4: And then let's otherwise specify all of the Q4 growth figures cited in my remarks are year over year comparisons.
Speaker 4: In the fourth quarter, we generated $135 million of revenue, representing a 56% increase compared to Q4 of 2021.
Speaker 4: Our fourth quarter revenue growth year over year was driven by an increase in bookable nights of 39% and red part growth of 11%.
Speaker 4: Again, this quarter, key performance metrics improved year-over-year, including live units, bookable nights, occupied nights, and repart.
Speaker 4: We ended the quarter with over 9,700 live units representing 28% growth.
Speaker 4: driven by the conversion of contracted units into live units over the past year.
Speaker 4: In Q4, we had approximately 852,000 bookable nights an increase of 39% driven by this live unit growth.
Speaker 4: Rift par on the fourth quarter was $158. Up 11% year-a-year despite a 7% decline in ADR to $191.
Speaker 4: The decline in ADR was the result of our higher occupancy strategy we have talked about previously. To that point, our occupancy was 83% in the fourth quarter of 1,400 basis points year over year.
Speaker 4: In the fine and ADR was the result of our higher occupancy strategy we have talked about previously. To that point, our occupancy was 83% in the fourth quarter of 1,400 basis points year over year. Our strategy hasn't changed in this respect.
Speaker 4: Our goal is to optimize revenue, and we are continually trying to strike the right balance between demand and rate.
Speaker 5: Occupancy rate is an output of this optimization effort rather than a goal in and of itself.
Speaker 5: Total costs and operating expenses increased by 25% to $194 million, inclusive of $5 million of stock-based compensation expense in the quarter.
Speaker 5: All of this while revenue increased 56%.
Speaker 5: The increase in total cost and operating expenses were driven primarily by the overall growth in our live units.
Speaker 5: We continue to focus on free cash flow as our primary measure of financial performance.
Speaker 5: We are building this muscle at Tonder.
Speaker 5: The trajectory and our free cash flow results is evidence of this, and we continue to look at our investments and our cost structure through the lens of our free cash flow metric. In the fourth quarter, as France has mentioned, free cash flow before one time restructuring costs total negative $30 million compared to negative $39 million in the third quarter.
Speaker 5: and negative $53 million in the fourth quarter of 2021. Free cash flow margin also improved, reaching negative 22% compared to negative 31% in the third quarter of 2022 and negative 61% in the fourth quarter of 2021.
Speaker 5: The sequential improvement was primarily driven by continued efficiencies, realized in our efforts to optimize our cost structure as we scale. I would also like to provide an update on cash contribution margin, which is a unit economic metric we use to measure property level performance by excluding corporate and other non-property level costs.
Speaker 5: This enables us to assess the performance of our live property portfolio.
Speaker 5: taking into account the benefits of upfront rent abatement, which is typical in the deals we sign. In the fourth quarter, cash contribution margin was 24% versus 22% in the third quarter, and more than double the 10% from Q4 of 2021.
Speaker 5: We are focused on continuing to improve this metric over time, and I am pleased with the progress we're making in property-level financial performance.
Speaker 5: Turning to the balance sheet, as of December 31st, we had $289 million in cash and restricted cash.
Speaker 5: and $173 million in total debt.
Speaker 5: Note that restricted cash increased by $41 million sequentially due to temporary cash collateral requirements as we transition our letters of credit and deposit accounts to our new line of credit bank partner.
Speaker 5: $8 million of that restricted cash was already released in January , and we anticipate the majority of the remainder of this cash will be released by the end of this year.
Speaker 5: In conjunction with the change in bank partners, we were also able to increase our line of credit capacity from $50 million to $60 million to support our live unit growth as this line of credit supports letters of credit issued to our property owners.
Speaker 5: Regarding guidance, for the first quarter of 2023, we expect revenue of better than $110 million, representing 37% year-to-year growth.
Speaker 5: I want to remind everyone that Q1 has historically been our seasonally weakest quarter of the year, and we anticipate a similar pattern again this year. For Q1 2023, we expect free cash flow of better than negative $45 million before a restructuring costs.
Speaker 5: Separately, as a reminder, 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 the significant slowdown in demand. With that, we are now happy to take your questions. Operator? Thank you. And as a reminder, to ask a question, simply press star 1-1. Can the answer should not be proven online.
Speaker 2: on your telephone and wait for your name to be announced.
Speaker 2: So we draw your questions simply press star one one again. Please standby while we compile the Q&A roster.
Speaker 2: And we have a question from the line of Dad Kelly with Openheimer and company please go ahead.
Speaker 6: Hey, great. Thanks for taking my questions.
Speaker 6: Just to kill you just talk about the outlook for one queue and then just sort of how you're thinking of red part. I think when we look at the overall.
Speaker 6: hotel industry this year, it seems like you get a big jump in Revpar and 1Q price call it 25 to 30 percent that year over year growth sort of dissipates. So do you expect your Revpar to sort of follow a similar trend? So any thoughts on Revpar would be great. Hey, Jed. This is Chris. I'll start this off. Thanks, consistant.
Speaker 5: Yeah, so the guidance today, we said we really guide toward revenue. We don't really differentiate or split out rep or versus bookable night. But we are getting to better than $110 million in Q1, which is an increase of about 37, 38% versus Q1 of 2022.
Speaker 5: So we feel good about that trajectory right now. I mean, just recognizing too that Q1 is typically our lowest quarter from a seasonality perspective as well. The other reminder too is last year during sort of really hard hit COVID periods like Omicron and Q1,
Speaker 5: We performed better than our peers, so the comps going into Q1 for us are going to be a little bit tougher than the other comps from our peers. So just a recognition of that.
Speaker 6: Got it and then um
Speaker 6: just with some of the head count reduction.
Speaker 6: you know, should we expect the majority of that to, um,
Speaker 6: to come out of GNA and then can you just give us an update? You know, your positive cash contribution quarter, are you expecting that to be in 3Q or 4Q? Just how should we be thinking about that?
Speaker 5: Yeah, Jen, thanks again. In terms of the impact of the head count of reductions, the largest impact will be the GNA. These are largely corporate roles. So that's the answer for that one. In terms of the free caselo timing, we're really focused on reaching positive free caselo, quarterly free caselo here in 2023.
Speaker 5: We're not providing anything further at this point other than the guidance for Q1s.
Speaker 7: Got it. Alright, and then um...
Speaker 6: Just to read and then with the reduction of units, can you just talk about how we should be thinking about your portfolio approach going forward and anything and how we should be thinking about the supply ramp this year?
Speaker 5: Yeah, for sure this is Chris once again.
Speaker 5: Yeah, each quarter, we take a look at, we take a fresh look at our portfolio based on what's going on. Current staff circumstances, macro environment, and what we've done is our best correct me exclude what we consider at risk units given the macro and financing environment challenges that we've seen over the past several months.
Speaker 5: from our overall look to be more of a conservative event given the uncertainty that's out there on these financing contingencies. As we have focused on free cash flow this year, the signings that we've entered into this year, we have increased the hurdle rates, the contribution margin hurdle rates, lower payback periods.
Speaker 5: All of that as we really developed this muscle. And so we're pretty optimistic about further signings this year, but that's why you've seen some of the slowdown over the course of the past few months.
Speaker 8: Thank you.
Speaker 4: And just maybe one piece I could add here, Francis, stepping in on the questions of the total portfolio is that these properties that have contingencies that we've decided to exclude as best-gris.
Speaker 4: And just maybe one piece I could add here Francis stepping in on the question of the total portfolio is that these properties that have contingencies that we've decided to exclude as Christ just explained.
Speaker 4: The vast majority of those are not expected to go live before 2025 because we're talking predominantly of financing contingencies that would proceed any sort of construction that would have to take place before those sign units can turn into converted units. And so, you know, the impact on live units and bookable nights.
Speaker 4: for the next couple of years as a minimal.
Speaker 9: Thank you.
Speaker 2: Thank you. One moment for our next question, please.
Speaker 2: Any comments from the line of Nick Jones with JMP Securities? Please proceed.
Speaker 10: Great, thanks for taking the questions. I guess there's one on 4Q with, you know, the Dubai location. I mean, any benefit from the World Cup in 4Q that we should note. And then I guess if so, anything from the Super Bowl on 1Q.
Speaker 4: Yeah, Francis here, happy to answer your question. So we've got some significant events happening and across the world, across all of our markets on many times a year. And so there's rarely an impact at the aggregate level that could be felt, especially if you look at comparison periods.
Speaker 4: for 2021 where you had other things driving demand, especially in Dubai that work quite strong. So it's one of these markets that have very sharp recovery post-COVID. So there's a lot of put in takes there, but we don't think that the performance of the business or Raspar was inflated as a result of one-time events.
Speaker 10: Got it. And then I guess just to belabor the rev part piece, I think 80 Rs are, you know.
Speaker 10: You guys are really kind of maintained price. It sounds like some of the commentary we've heard is that that's going to be kind of resilient.
Speaker 10: at least in the first half of this year, I mean, should we be considering any kind of mix shift as international travel comes back, maybe pressuring ADRs or any, I guess I'm trying to come at this question from a different angle, how we kind of can think about how resilient these can be as we progress through 2023.
Speaker 4: Yeah, certainly. So, well, we have one thing I think that is important to keep in mind about our relative positioning of our price point. One of the major valid propositions of staying at Saunders is that we remain relatively affordable option, you know, especially for the quality of experience that we offer. So, when we look at our peer group.
Speaker 4: We typically come in with better audio, but slightly lower ADRs. So we think that this value proposition can hold particularly well in a software-demand
Speaker 4: I'm going to go to the other piece of that equation, which is what will the market be? Well, I don't think we have any further differentiated insight than the market economy for the kind of economists on what the travel landscape looks like in urban markets. We have good visibility, 30 to 45 days out based on the book, the book, the books. But beyond that, really, we look at what is the consensus economic view?
Speaker 4: that still isn't fully recovered until Q4 of 2022 across the urban markets in which we currently are versus 2019 levels. And that's despite an economy that's inflated quite a bit overall since then. So we've only gotten back to rough part levels of 2019 as of Q4 2022.
Speaker 4: And so there's an expectation on the part of the market that we'll see strong ADR and rev-part performance broadly in the market in which we currently are, but of course we don't have a crystal ball that I want to pine onto what exactly that will be.
Speaker 10: Got it. And if I can ask a question on kind of live units, if I look back over the last nine quarters, maybe with the exception of 4Q21 and 1Q22, it looks like somewhere between 500 and
Speaker 10: 700 units turn on sequentially. Is that the right way to think about the growth of live units?
Speaker 4: So, I think you're correct to point out that this has been kind of the pace of openings. We have a really substantial portfolio of sign not live properties, right, that's consistent in the majority of the growth of the business in the last several months since we announced our cash flow positive plan. That's about 1.8x.
Speaker 4: growth in live units that we expect to generate as these sign units that aren't yet live become live. So we don't break out in our guidance, the live units and certainly not several quarters forward, but we do have a really large book of sign deals that are expected to.
Speaker 4: to contribute to Bookable Night over the coming years.
Speaker 10: If I got one last question, just how should we think about corporate travel in 2023?
Speaker 10: going to be a big contributor or what's kind of low hanging fruit there as you progress through 23. Thanks.
Speaker 4: Certainly, so, I mean, we announced some really positive news today on corporate travel, right? 70 million of booked corporate sales, which was a 5x growth from 2021.
Speaker 4: So really extraordinary progress there from the team, really proud of the work that they've done to go and drive, especially weekday demand and help bolster revs bars during weekdays where we've traditionally been not as strong as our comps, but we're making a lot of progress there and there's more to come in 2023. Of course, the question mark on how strong will be business travel demand?
Speaker 4: which we don't have, again, differentiated inside into beyond what prognosticators, forecasters have already laid out, but we feel very good about our capacity to get a disproportionate share as we have in 2022.
Speaker 4: which we all have, again, differentiated inside into beyond what what prognosticators, forecasters have already laid out. But we feel very good about our capacity to get a disproportionate share as we have in 2022. Great. Thanks for taking my questions.
Speaker 2: Thank you. One moment for our next question please.
Speaker 2: Any comments from the line up, Ron, Josie, with City, please proceed.
Speaker 6: Great, thanks for taking the question, guys. Two, please. What would you follow up on on next questions, your own corporate and, Frank, what I think I heard you say in the prepared remarks, just the integration with the GDS is helped to drive a lot of the growth there. Talk to us about just the plan to raise awareness, working with corporates.
Speaker 11: being part of the overall travel, called booking a process flow amongst corporate travel. How that's how you're doing there and how that's driving overall growth. And then Chris, I think I heard you say that maybe tougher comps coming up due to COVID, but you can't not talk about summer travel and would love to hear your.
Speaker 4: has been working hard to add to our demand channels. And so those efforts are starting to pay off. And in addition to, of course, the technology kind of distribution angle, it's really important to have boots on the ground and folks that are there to advocate and sell the Sonder-Value crop position to corporate customers.
Speaker 4: We've been included in a lot more RFPs during RFP season as a result of some of these efforts. We've got many verticals that are just working quite well for us that we're leaning into, like entertainment, sports, corporate housing, relocations.
Speaker 4: internships. So we're really kind of finding use cases that work really well for offering and lean into these segments and these businesses in order to grow our corporate booking volume. So we're very happy with all the efforts that it's taken to get there. It's by no means easy to pull off. We've hired some folks that come from industry.
Speaker 5: and know how to get it done and that's really delivered something quite strong over the last couple of years. I'll like Chris jumped into the summer travel question. Yeah, I will really just restate what we've said in the past as we only have visibility internally to the next.
Speaker 5: 30 to 45 days and that goes into our Q-1 forecast. When it comes to longer term, we really relying on the same sort of information that you probably have, Ron in terms of the travel research out there. You know, if you look at Q-1 last year, when I say difficult comps, it's really that we performed better than our peers in Q-1 last year during the Omicron.
Speaker 5: sort of wave that came through and so that's why Q1 is a little bit tougher comp when looking at other peers and then there was a last year there was a bit of a hockey stick recovery as we went from Q1 and to Q2 and Q3 but right now we don't have any really insight into what the next several months look like other than Q1 which is the guidance we provided today.
Speaker 11: That's helpful. Maybe Francis is a quick follow-up if I may. Just on corporate travel, the 70 million, if my math is right, it's around 15% of revenue. Hard to think about where that goes longer term, but any reason to believe that corporate travel would be any different than call it. More traditional lodging contribution for traditional lodging.
Speaker 4: the steady state amount of demand that will be driven by a corporate program versus other sources of demand of demand. And we're also very fortunate to be extremely strong at Leisure. And so, and we managed to generate very attractive rev cars and occupancies on weekends and in the leisure of strong markets. And so the goal wouldn't be to replace that demand with demand that would competentially at lower.
Speaker 4: Revpars or AVRs from other segments. So it's really an optimization game and there's a different answer for each building and for each market. See from first principles or reasons to believe that we would be any weaker or particularly strong versus you know the global hospitality brand. But something that we're going to find out over the coming years. Thank you, Frances. Thank you, Chris.
Speaker 2: Thank you. And ladies and gentlemen, with that, I will conclude the Q&A session and today's conference. Thank you all for participating, and you may now disconnect. Good day.
Speaker 12: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1.
Speaker 1: My you.
Speaker 2: Good day and thank you for standing by and welcome to Sumder's fourth quarter 2022 financial result. At this time, all participants are in Alisson on the mode. After the speakers presentation, there will be a question and answer session. To ask questions during the session, you will need to press star one on your telephone.
Speaker 2: You will then hear an automated message, advising your hand this race. To withdraw your questions, simply press star1 1 again.
Speaker 2: Also, be advised that today's conference is being recorded. I would now like to hand a conference over to your speaker today, John Charbonneau, vice president, head of investor relations. Please go ahead. Thank you, operator. Good afternoon, ladies and gentlemen.
Speaker 3: Thank you for joining us to discuss Fondre's fourth quarter, 2022 financial results. Joining me on the call today are Francis Davidson, co-founder and CEO and Chris Berry, Chief Accounting Officer.
Speaker 3: full details of a result and additional management commentary are available in our fourth quarter 2022 shareholder letter which can be found on the investor relations section of our website at investors.sonder.com.
Speaker 3: 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 signed strategies, market opportunities, and future financial and operating results that involve risks and uncertainties that may cause actual results.
Speaker 3: 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 SONDERS SEC filings.
Speaker 3: The forward-looking statements and discussions of risks in this conference call, including responses to your questions, are based on current expectations as of today.
Speaker 3: SONDR 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.
Speaker 3: for reconciliation of these non- GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAP. Please see our shareholder letter posted to our Invest Relations website. Now I'll turn the call over to Francis Davidson, Sanders, co-founder, and CEO .
Speaker 4: Thank you, Dawn. Good afternoon, everyone, and thank you for joining us today.
Speaker 4: My remarks will cover two areas. First, a quick overview of our financial performance in the fourth quarter and 2022. And second, a brief overview of our key focus areas for the year.
Speaker 4: I'm encouraged by what we accomplished in 2022, especially considering a material shift in company strategy mid-year to focus on generating positive free cash flow. We continue to meaningfully scale the business and still have a robust portfolio of contracted but not live units to help drive growth in the near-to-mid term.
Speaker 4: At the same time, our cost structure improves through the year and we expect further leverage on costs in 2023 and VR. We also saw meaningful improvement in property-level performance, negligence that cuts free cash whole burn in half over the course of 2022.
Speaker 4: These results reaffirm my conviction in our business model and I believe that we're on a path to generating positive free cash flow.
Speaker 4: Now, I'd like to provide more details on the fourth quarter and 2022. Our fourth quarter results were highlighted by the third quarter in a row of free cash flow improvements to negative 30 million versus negative 39 million in the previous quarter and negative 62 million in the first quarter of 2022.
Speaker 4: This helped drive the significant improvement in the CS margin throughout the year reaching negative 22% in the fourth quarter versus negative 77% in the first quarter.
Speaker 4: And cash contribution margin, which is the unit economic metric, we used to measure property level performance, was 24% in the fourth quarter compared to 22% last quarter and 10% a year ago.
Speaker 4: In 2022, we saw significant improvement in REST PAR, which was up over 30% year over year.
Speaker 4: while we lowered our cost structure, including our property level cost drivers which improved over the course of the year. Together with high quality and capital-like property openings, this drove a sequential improvement in gas contribution margin in every quarter of 2022, enabling us to cut cash burn and improve SES margins.
Speaker 4: As you can see, we've meaningfully improved our unit economics versus a year ago and ended in 2022 with a better overhead cost structure while continuing to strive for further improvements including the ones that we'll speak about shortly. We believe the seven straights that our business fundamentals would continue to improve and that we're executing against our cash flow positive plans. I'm also proud of our top line performance with 2022 revenue up approximately 100% year over here.
Speaker 4: Moreover, we generated $135 million in revenue in the fourth quarter, which is over half of the land dollars on an annualized rent rate revenue basis, everything 2022. I would like to provide a quick overview of our key focus areas for 2023, starting with our rev part initialization.
Speaker 4: In 2022, we continued to expand our corporate business, which included, among other things, strengthening our position on GDS platforms and adding a significant amount of corporate travel accounts. This translated into approximately 70 million in the book to corporate fail in 2022, roughly 5x gross compared to 2021.
Speaker 4: This year, we plan to continue expanding into new industry segments and expect another year of strong growth within the corporate business, which will bolster weekday rough parts in particular, an area that's still a little on the buff side.
Speaker 4: We're also doubling down on our elevated merchandising strategy with a re-imagine art direction and photography style which we have seen drive over 10% improvements in conversion rates across 10 pilot properties.
Speaker 4: We're excited to implement this in over 40 of our largest properties this year, which will represent over 50% of all live units. Next, on June 9th, we announced our cash-alpods of plan, which shifted our focus from hyper growth to generating positive free cash flow more rapidly than previously planned. We're excited to implement this in over 40 of our largest properties this year.
Speaker 4: As a reminder, this shift in focus was not due to a lack of growth opportunities, but instead because market conditions had changed and we thought it was prudent to shift our strategy to adapt to the changing macro environment.
Speaker 4: As you can see from our fourth quarter results, we've continued to make meaningful progress against this plan. I'll let Chris provide details and guidance, but we'll note that our focus remains on reaching our first quarter of positive pre-cash flow in 2023.
Speaker 4: We've also continued to evaluate our cost structure, especially given ongoing macro uncertainty. As a result, we decided to reduce our overhead expense base, both across non-hide count and ahead count stems, reducing a approximately 100 corporate roles or 14% of our corporate workforce, which will lead to approximately 10 million in annualized cost savings.
Speaker 4: in addition to anticipated savings from non-headcount reduction.
Speaker 4: We've done our best to support our departing colleagues with care, dignity and compassion, and are providing seven packages including benefits, continuation and other support system that are transition. Another component of the cash flow of the plant has been to proactively reduce our plant and finding peace.
Speaker 4: with growth in the near-term still being primarily driven by opening previously contracted units. In the fourth quarter, log units were by 28% year-over-year driven by strong conversion from our contracted units to log units.
Speaker 4: At the same time, we continued to see development cost uncertainty and augmented risk around financing. As a result, we felt there was prudence to exclude a number of contracted units with financing contingencies, which drove the sequential decline within our total portfolio numbers. Importantly, the vast majority of contracted units we excluded weren't expected to go alive until 2025 or beyond.
Speaker 4: sustainable long-term value for all shareholders. I want to thank our employees, partners and guests, across the globe for choosing Saunders and for their continued belief and support of our mission to revolutionize hospitality. With that, I'll turn the call over to our Chief Accounting Officer, Chris Berry, who will provide you with further details on a recent financial performance and an update to our guidance, Chris. Thank you, Francis and hello everyone.
Speaker 5: I will first provide a brief overview of our fourth quarter financial results, and then we'll share our guidance for the first quarter of 2023. We'll then open the call to questions.
Speaker 5: And unless otherwise specified, all of the Q4 growth figures cited in my remarks are year-over-year comparisons. In the fourth quarter, we generated $135 million of revenue, representing a 56% increase compared to Q4 2021. Our fourth quarter revenue growth year-over-year was driven by an increase in bookable nights of 39%
Speaker 5: 28 percent growth.
Speaker 5: driven by the conversion of contracted units into live units over the past year.
Speaker 5: In Q4, we had approximately 852,000 bookable nights, an increase of 39% driven by this live unit growth.
Speaker 5: Rift par in the fourth quarter was $158. Up 11% year over year, despite a 7% decline in ADR to $191. The decline in ADR was the result of our higher occupancy strategy we have talked about previously.
Speaker 5: To that point, our occupancy was 83% in the fourth quarter of 1,400 basis points year-over-year.
Speaker 5: Our strategy hasn't changed in this respect. Our goal is to optimize revenue, and we are continually trying to strike the right balance between demand and rate.
Speaker 5: Occupancy rate is an output of this optimization effort rather than a goal in and of itself.
Speaker 5: Total costs and operating expenses increased by 25% to $194 million, inclusive of $5 million of stock-based compensation expense in the quarter. All of this while revenue increased 56%. The increase in total cost and operating expenses were driven.
Speaker 5: we continue to look at our investments and our cost structure through the lens of our free cash flow metric.
Speaker 5: In the fourth quarter, as Francis mentioned, free cash flow before one-time restructuring costs totaled negative $30 million compared to negative $39 million in the third quarter and negative $53 million in the fourth quarter of 2021.
Speaker 5: Free cash flow margin also improved, reaching negative 22% compared to negative 31% in the third quarter of 2022 and negative 61% in the fourth quarter of 2021.
Speaker 5: The sequential improvement was primarily driven by continued efficiencies, realized in our efforts to optimize our cost structure as we scale. I would also like to provide an update on cash contribution margin, which is a unit economic metric we use to measure property level performance by excluding corporate and other non-property level costs.
Speaker 5: This enables us to assess the performance of our live property portfolio, taking into account the benefit of upfront rent abatement, which is typical in the deals we sign.
In the fourth quarter, cash contribution margin was 24% versus 22% in the third quarter and more than double the 10% from Q4 of 2021.
We are focused on continuing to improve this metric over time, and I am pleased with the progress we're making in property-level financial performance. Turning to the balance sheet, as of December 31st, we had $289 million in cash and restrictedabilitation and are expected to earn million from insurance. And we were more focused on carrying out toilet
and $173 million in total debt. Note that restricted cash increased by $41 million sequentially due to temporary cash collateral requirements as we transition our letters of credit and deposit accounts to our new line of credit bank partner.
$8 million of that restricted cash was already released in January , and we anticipate the majority of the remainder of this cash will be released by the end of this year.
In conjunction with the change in bank partners, we were also able to increase our line of credit capacity from $50 million to $60 million to support our live unit growth as this line of credit supports letters of credit issued to our property owners.
Regarding guidance, for the first quarter of 2023, we expect revenue of better than $110 million, representing 37% year-over-year growth. I want to remind everyone that Q1 has historically been our seasonally weakest quarter of the year, and we anticipate a similar pattern again this year. For Q1 2023, we expect free cash flow of better than $110 million.
Thank you. And as a reminder, to ask the question, simply press star 11 on your telephone and wait for your name to be announced.
So we draw your questions simply press star one one again. Please standby while we compile the Q&A roster And we have a question from the line of dad Kelly with openheimer and company, please go ahead Hey, oh great. Thanks for taking my question
Just can we just talk about the outlook for one queue and then just sort of how you're thinking of red part I think when we look at the overall um
Okay, I'll just read this here. It seems like you get a big jump in Rep Part 1 queue. Probably call it 25 to 30% that year over year growth sort of dissipates. So do you expect your Rep Part to sort of follow a similar trend? So any thoughts on Rep Part? Be great. Hey, Jen. This is Chris. I'll start this off.
Yeah, so the guidance today, we said we really guide toward revenue. We don't really differentiate or split out rep or versus bookable night. But we are getting to better than $110 million in Q1, which is an increase of about 37, 38% versus Q1 of 2022. So we feel good about that trajectory right now. I mean, just recognizing too that Q1 is typically our lowest.
quarter from a seasonality perspective as well. The other reminder too is last year, during sort of really hard hit COVID periods like Omicron and Q1, we performed better than our peers. So the comps going into Q1 for us are going to be a little bit tougher than the other comps from our peers. So just a recognition of that. Got it. And then, um,
just with some of the head count reduction, you know, should we expect the majority of that to come out of GNA, and then, can you just give us an update? You know, your positive cash contribution quarter, are you expecting that to be in 3Q or 4Q, just how should we be thinking about that? Yeah, Jay, thanks again.
at this point other than the guidance for Q1.
All right, and then just to read, and then with the reduction of units, can you just talk about how we should be thinking about your...
You know, your portfolio approach going forward and anything and I'm like how we should be thinking about the supply ramp this year.
You know, your portfolio approach going forward and anything and like how we should be thinking about the supply ramp this year. Yeah, for sure. This is Chris once again.
Yeah, each quarter, we take a look at, we take a fresh look at our portfolio based on what's going on. Current fact circumstances, macro environment. And what we've done is our best practice. We exclude what we consider at risk units given the macro and financing environment challenges that we've seen over the past several months. And then how that impacts any financing contingencies that are built into some of these contracted properties.
entered into this year, we have increased the hurdle rates, the contribution margin hurdle rates, lower payback periods, all of that as we really develop this muscle. And so we're pretty optimistic about further signings this year, but that's why you've seen some of the slowdown over the course of the past few months.
Thank you. And just maybe one piece I could add here Francis stepping in on the questions that total portfolio is that these properties that have contingencies that we've decided to exclude is that's Chris.
just explain. The vast majority of those were not expected to go live before 2025, because we're talking predominantly of financing contingencies that would proceed any sort of construction that would have to take place before those sign units can turn into converted units. And so, you know, the impact on live units and bookable nights for the next couple of years is minimal.
Thank you. One moment for our next question, please.
Any comments from the line of Nick Jones with JMP Securities, please proceed.
Great, thanks for taking the questions. I guess there's one on 4Q with the location. I mean, any benefit from the World Cup in 4Q that we should note. And then I guess if so, anything from the Super Bowl on 1Q. Yeah, Francis here, happy to answer your question.
So we've got some significant events happening across the world, across all of our markets on many times a year. And so there's rarely an impact at the aggregate level that could be felt, especially if you look at comparison periods for 2021 where you had other things driving demand, especially in Dubai that work quite strong. So it's one of these markets that have very sharp recovery post-COVID.
So there's a lot of put in takes there, but we don't think that the performance of the business or RevPAR was inflated as a result of one time events. Got it. And then I guess just to belabor the RevPAR piece, I think 80 Rs are, you know.
but we don't think that the performance of the business or ReVPAR was insulated as a result of one time events. Got it. And then I guess just to belabor the ReVPAR piece, I think 80 Rs are, you guys are really kind of maintained price.
It sounds like some of the commentary we've heard is that that's going to be kind of resilient. At least in the first half of this year, I mean, should we be considering any kind of mixed shift as international travel comes back, maybe pressuring ADRs or any...
I guess I'm trying to come at this question from a different angle of how we kind of can think about how resilient these can be as we progress through 2023. Yeah, certainly. One thing I think that is important to keep in mind about our relative positioning of our price point, one of the major things that we can do is to keep our price point in the right direction. And that is what we're trying to do. We're trying to keep our price point in the right direction. And that's what we're trying to do.
Solid propositions of staying at Saunders is that we remain relatively affordable option, you know, especially for the quality of experience that we offer. So when we look at our peer group, we typically come in with better audio, but slightly lower ADRs. So we think that this this solid proposition can hold particularly well in a softer demand environment.
We have to go through the changes. We just have to double-check the results. We're going to go to the other piece of that equation, which is what will the market be? Well, I don't think we have any further differentiated insight than the market comment from a kind of economist on. We're going to go through the changes.
what the travel landscape looks like in urban markets. We have good visibility 30 to 45 days out based on the book, the travel books, but beyond that really we look at what is kind of the consensus the consensus, economic view and use that to plan our business.
There is, I should say, despite a Conservatism when it comes to the overall state of the economy. There is quite a lot of optimism for urban travel right now in the Coming from the third party for casters because we're looking at a baseline of rough part that still isn't fully recovered until Q4 of 2022 across the urban markets in which we currently are
versus 2019 levels and that's despite an economy that's inflated quite a bit overall since then. So we've only gotten back to REFRPAR levels of 2019 as of Q4 2022 and so there's an expectation on the part of the market that we'll see strong ADR and REFRPAR performance broadly in the markets in which we currently are but of course we don't have a crystal ball. I want to pine on to what exactly that will be.
Got it. And if I can ask a question on kind of live units, if I look back over the last nine quarters, maybe with the exception of 4Q21 and 1Q22, it looks like somewhere between 500 and...
seven hundred units turn on sequentially. Is that the right way to think about the growth of live units? So, I think you're correct to point out that this has been kind of the pace of openings.
We have a really substantial portfolio of sign not live properties, right, that's consistent in the majority of the growth of the business in the last several months since we announced our cash flow positive plan. It's about 1.8x growth in live units that we expect to generate as these sign units that aren't yet live.
become live. So we don't break out in our guidance, the live units, and certainly not several quarters forward, but we do have a really large book of sign deals that are expected to contribute to bookable nights over the coming years.
If I got one last question, just how should we think about corporate travel in 2023? Is that going to be a big contributor or what's kind of low hanging fruit there as you progress through 23? Thanks. Certainly. We announced some really positive news today on corporate travel right? 70-0.
been not as strong as our comps, but we're making a lot of progress there and there's more to come in 2023. Of course, the question mark on how strong will be business travel demand, which we all have, again, differentiated inside and to beyond what prognosticators, forecasters have already laid out.
But we feel very good about our capacity to get a disproportionate share as we have in 2022. Thank you for taking my questions. Thank you. One moment for our next question, please.
And he comes from the line of Ron Josie with it city. Please proceed right. Thanks for taking the question, guys to please 't want to follow up on next questions to your own corporate and frs. I think I heard you say in the prepared remarks just the integration with the GDS.
helped to drive a lot of the growth there. Talk to us about just the plan to raise awareness, working with corporates, being part of the overall travel, call it booking process flow amongst corporate travel. How that's how you're doing there and how that's driving overall growth. And then Chris, I think I heard you say that maybe tougher comps.
coming up due to COVID but you know
We can't not talk about summer travel and would love to hear your your thoughts and what you're seeing in terms of Current trends thoughts in the summer travel insights on booking windows things along those lines. Thanks guys Thank you. So let me kick it off with the first one Ron. So yes, we've added more GDS's. There's a whole
distribution landscape for business travel that our team has been working hard to add to our demand channels. And so those efforts are starting to pay off. And in addition to, of course, the technology kind of distribution angle, it's really important to have boots on the ground and folks that are there to advocate and sell the Sonder-Value proposition to corporate customers. We've been included in a lot more RFPs during RFP season.
as a result of some of these efforts. We've got many verticals that are just working quite well for us that we're leaning into like entertainment, sports, corporate housing, relocations, internships. So we're really kind of finding use cases that work really well for offering and lean into these segments and these businesses in order to grow our corporate booking volume. So we're very happy with all the efforts that it's taken to get there. It's by no means.
same sort of information that you probably have, Ron, in terms of the travel research out there. You know, if you look at Q1 last year, when I say difficult comps, it's really that we performed better than our peers in Q1 last year during the Omicron sort of wave that came through. And so that's why Q1 is a little bit tougher comp when looking at other peers.
And then there was a last year, there was a bit of a hockey stick recovery as we went from Q1 and Q2 and Q3. But right now we don't have any really insight into what the next several months look like other than Q1, which is the guidance we provided today. That's helpful, maybe Francis, as a quick follow-up if I may. Just on corporate travel, the 70 million, if my math is right, it's around 15% of a revenue.
hard to think about like where that goes longer term, but any reason to believe that corporate travel would be any different than call it more traditional lodging, contribution for more traditional lodging players out there, or do you think that maybe founder might be uniquely positioned just given the portfolio, given the comfort and all the different services Now thanks, Ron. I think that's a really thoughtful question, and we've been having some of these debates internally to try and figure out what is the steady state.
amount of demand that will be driven by a corporate program versus other sources of demand. We're also very fortunate to be extremely strong at Leisure. We've managed to generate very attractive rev cars and occupancies on weekends and in Leisure strong markets.
And so the goal wouldn't be to replace that demand with demand that would come potentially at lower revpars or AVRs from other segments. So it's really an optimization game and there's a different answer for each building and for each market. But see from first principles of reasons to believe that we would be any weaker or particularly strong versus, you know, the global hospitality brand, but something that we're going to find out over the coming years. Thank you very much for having me.
wouldn't be to replace that demand with demand that would come potentially at lower rev bars or AVRs from other segments. So it's really an optimization game and there's a different answer for each building and for each market. See from first principles or reasons to believe that we would be any weaker or particularly strong versus you know the global hospitality brand but something that we're going to find out over the coming years. Thank you, Frances. Thank you, Chris.
Thank you. And ladies and gentlemen, with that, I will conclude the Q&A session and today's conference. Thank you all for participating. And you may now disconnect.