8-K: Sonder Holdings Inc. Announces Restatement of Financials and Preliminary 2023 Results

Sonder Holdings Inc. will restate its 2022 and 2023 financial statements due to accounting errors related to lease assets, and has released preliminary unaudited results for Q4 and full year 2023.

Summary

• Sonder Holdings Inc. has identified accounting errors related to the valuation and impairment of operating lease right of use assets.
• The company will restate its 2022 and 2023 financial statements, which are referred to as the Affected Financial Statements.
• The errors are non-cash in nature and will not impact the company's reported cash balances or statements of cash flows.
• The restatements are expected to increase the company's overall net loss and loss per share in the impacted periods.
• Sonder anticipates a delay in filing its 2023 annual report and expects to receive a non-compliance notice from Nasdaq.
• Preliminary unaudited results for 2023 include revenue of approximately $164 million for Q4 and $603 million for the full year.
• RevPAR was approximately $150 for Q4 and $151 for the full year, with an occupancy rate of 82% for both periods.
• Operating cash flow was approximately $(34) million for Q4 and $(108) million for the full year.
• Free cash flow, excluding restructuring and lease termination costs, was approximately $(35) million for Q4 and $(119) million for the full year.
• Total cash, cash equivalents, and restricted cash were approximately $136.5 million as of December 31, 2023, with $40.7 million restricted.
• Live units were 12,200 and the total portfolio was 16,000 as of December 31, 2023.

Sentiment

Score: 3

Explanation: The document reveals significant accounting issues, restatements, and negative cash flow, which are major concerns for investors. While there are some positive operational metrics, the overall tone is negative due to the financial instability and potential risks.

Positives

• The company has taken steps to improve its financial position, including reducing corporate headcount by 38% since Q1 2022.
• Sonder is engaging in a portfolio optimization program to improve the financial performance of its properties.
• The company is exploring additional opportunities to improve revenue and reduce expenditures.
• The company's occupancy rate remained strong at 82% for both Q4 and the full year 2023.

Negatives

• The company has identified accounting errors that require restatement of prior financial statements.
• The restatements are expected to increase the company's net loss and loss per share.
• Sonder anticipates a delay in filing its 2023 annual report and expects to receive a non-compliance notice from Nasdaq.
• The company's operating and free cash flow were negative for both Q4 and the full year 2023.
• The company's cash balance decreased from $207.2 million as of September 30, 2023, to $136.5 million as of December 31, 2023.

Risks

• There is a risk that additional accounting errors or corrections will be identified.
• The company may face additional delays in its SEC filings.
• Sonder may be unable to obtain waivers or amendments of applicable debt covenants.
• There are uncertainties associated with the company's liquidity and capital resources.
• The company may be unsuccessful in achieving positive free cash flow.
• The company may not be able to meet Nasdaq's continued listing requirements.
• The company's restructuring initiatives and portfolio optimization program may not be successful.

Future Outlook

The company expects its final results to be consistent with the preliminary estimates but acknowledges that actual results could differ materially. Sonder is working to improve revenue, reduce expenditures, and improve its liquidity position, but there is no guarantee of success.

Management Comments

• The company requires additional time to restate 2022 and 2023 financial statements.
• The company expects that the restatements will increase the company's overall net loss and loss per share in the impacted periods.
• The company intends to file its restated Affected Financial Statements as soon as practicable.
• The company is exploring a number of additional opportunities to improve revenue by enhancing its distribution arrangements, further reduce its expenditures, and partner with current or alternative capital providers to improve its liquidity position.

Industry Context

The hospitality industry is facing challenges related to lease management and financial reporting, and Sonder's situation highlights the importance of accurate accounting practices. The company's focus on technology and design is a differentiator in the market, but financial stability is crucial for long-term success.

Comparison to Industry Standards

• Sonder's RevPAR of approximately $150-$151 is within the range of other hospitality companies, but the negative cash flow is a concern.
• Companies like Airbnb and traditional hotel chains such as Marriott and Hilton have different business models, making direct comparisons challenging.
• Sonder's focus on tech-enabled service and design is a differentiator, but the accounting issues raise questions about internal controls.
• The company's occupancy rate of 82% is strong, indicating demand for its offerings, but the negative cash flow needs to be addressed.

Stakeholder Impact

• Shareholders will be impacted by the restatement of financial statements and potential decrease in share value.
• Employees may be affected by the company's restructuring initiatives and potential further cost-cutting measures.
• Customers may experience changes in service or offerings as the company optimizes its portfolio.
• Suppliers and creditors may be concerned about the company's financial stability and ability to meet its obligations.

Next Steps

• The company will restate its 2022 and 2023 financial statements.
• Sonder will file its restated financial statements as soon as practicable.
• The company will issue a further press release when a date and time for its fourth quarter and full year 2023 earnings release and investor conference call has been determined.
• The company will seek waivers from lenders for any noncompliance under the terms of its debt.
• The company will continue to explore opportunities to improve revenue, reduce expenditures, and improve its liquidity position.

Key Dates

Keywords

restatement, financial results, accounting errors, lease assets, preliminary results, revenue, RevPAR, occupancy rate, cash flow, Nasdaq, Sonder