424B3 - Q3 2022 10-Q Combined
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-262438


PROSPECTUS SUPPLEMENT
(To Prospectus dated February 9, 2022)

159,207,329 Shares of Common Stock
5,500,000 Warrants to Purchase Shares of Common Stock
https://cdn.kscope.io/d25768f0a12f2d1a6d772f77d356049f-logoa.jpg

This prospectus supplement (this “Prospectus Supplement”) supplements the prospectus dated February 9, 2022 (as supplemented to date, the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration Statement No. 333- 262438) filed with the Securities and Exchange Commission (the “Commission”) on January 31, 2022 and declared effective by the Commission on February 9, 2022, as amended by Post-Effective Amendment No. 1 to Form S-1 filed with the Commission on March 28, 2022 and declared effective by the Commission on April 1, 2022.

The Prospectus and this Prospectus Supplement relate to the offer by us of, and the resale by Selling Securityholders of: (i) 5,500,000 shares of Common Stock issuable upon the exercise of an aggregate of 5,500,000 warrants held by GM Sponsor II, LLC and HRM Holdings II, LLC, each of which is exercisable at a price of $11.50 per share (the “Private Placement Warrants”), (ii) 9,000,000 shares of Common Stock issuable upon the exercise of an aggregate of 9,000,000 warrants, each of which is exercisable at a price of $11.50 per share (the “Public Warrants”), (iii) 2,475,000 shares of Common Stock issuable upon the exercise of an aggregate of 2,475,000 warrants issued in connection with the funding of certain delayed draw subordinated secured notes, each of which is exercisable at a price of $12.50 per share (the “Delayed Draw Warrants”), (iv) 425,706 shares of Common Stock issuable upon exercise of warrants assumed by us in connection with the business combination transaction (the “Business Combination”) among us, Sunshine Merger Sub I Inc., Sunshine Merger Sub II, LLC and Sonder Operating Inc. (formerly known as Sonder Holdings Inc., “Legacy Sonder”) (the “Assumed Warrants” and together with the Private Placement Warrants, Public Warrants, Delayed Draw Warrants, the “Warrants”), and (v) 20,336 shares of Common Stock issuable upon the exercise of certain outstanding options to purchase Common Stock held by individuals who terminated their employment with Legacy Sonder prior to the Business Combination (the “Former Employee Options”).

The Prospectus and this Prospectus Supplement also relate to the resale from time to time by Selling Securityholders of: (i) 32,216,785 shares of Common Stock purchased at the Business Combination Closing Date by a number of subscribers pursuant to separate subscription agreements (the “PIPE Shares”), (ii) 9,972,715 shares of Common Stock held by GM Sponsor II, LLC, HRM Holdings II, LLC and certain former independent directors, (iii) an aggregate of 68,107,380 shares of Common Stock beneficially owned by certain former stockholders of Legacy Sonder; (iv) up to 7,272,691 shares which are issuable to certain former stockholders of Legacy Sonder upon the achievement of certain trading price targets for our Common Stock (the “Earn Out Shares”); (v) an aggregate of 22,387,448 shares of Common Stock issuable upon exchange of Canada Exchangeable Shares to certain former stockholders of Legacy Sonder; (vi) an aggregate of 1,829,268 shares of Common Stock transferred by Francis Davidson pursuant to a stock transfer agreement dated April 2021; and (vii) 5,500,000 Private Placement Warrants.

We will not receive any of the proceeds from the sale of the securities by the Selling Securityholders. We will receive proceeds from the exercise of the Warrants and Former Employee Options if the Warrants and Former Employee Options are exercised for cash. We will pay the expenses associated with registering the sales by the Selling Securityholders, as described in more detail in the section titled “Use of Proceeds” appearing elsewhere in the Prospectus.

This Prospectus Supplement should be read in conjunction with the Prospectus, which is to be delivered with this Prospectus Supplement. This Prospectus Supplement updates, amends and supplements the information included or incorporated by reference in the Prospectus. If there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on the information in this Prospectus Supplement.

This Prospectus Supplement is not complete without, and may not be delivered or utilized except in connection with, the Prospectus, including any amendments or supplements to it.

Quarterly Report on Form 10-Q

On November 10, 2022, we filed a Quarterly Report on Form 10-Q with the Commission. The portion of the text of such Form 10-Q that is treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, is attached hereto.





We are an “emerging growth company,” as defined under the federal securities laws, and, as such, may elect to comply with certain reduced public company reporting requirements for future filings.

Investing in our securities involves a high degree of risk. In reviewing the Prospectus and this Prospectus Supplement, you should carefully consider the matters described under the heading “Risk Factors” beginning on page 18 of the Prospectus.

You should rely only on the information contained in the Prospectus, this Prospectus Supplement or any prospectus supplement or amendment hereto. We have not authorized anyone to provide you with different information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus Supplement is November 10, 2022.

 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-39907
___________________________________
SONDER HOLDINGS INC.
___________________________________
(Exact name of registrant as specified in its charter)
Delaware85-2097088
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
101 15th Street
San Francisco, California
94103
(Address of principal executive offices)(Zip Code)
(617) 300-0956
(Registrant’s telephone number, including area code)
___________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per share
SOND
The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share
SONDW
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
The registrant had 218,058,524 shares of common stock outstanding as of November 4, 2022.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to future events or our expected future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•    our plans to achieve positive quarterly Free Cash Flow within 2023 without additional fundraising and to target “capital light” lease signings, as part of our Cash Flow Positive Plan announced on June 9, 2022;
•    our financial, operating and growth forecasts and projections;
•    expectations for our business, revenue, expenses, operating results, and financial condition;
•    our ability to achieve or maintain profitability in the future;
•    trends in the travel and hospitality industries, including the anticipated timing and nature of any travel recovery;
•    our pricing and revenue management strategies, pricing and occupancy forecasts and anticipated trends, and expectations about demand elasticity;
•    our expectations concerning future transaction structures and the anticipated rent, rent abatement, capital expenditure provisions, and other terms of our future leases;
•    potential ancillary revenue opportunities and our ability to improve our revenue management capabilities;
•    anticipated capital expenditure obligations, including expectations for real estate owners’ funding of capital expenditures and other pre-opening costs at our leased properties;
•    the expected adequacy of our capital resources, and the anticipated use of proceeds from any financings;
•    trends in corporate travel and the potential for additional group and corporate travel revenue;
•    anticipated occupancy rates and expectations about guests’ average length of stay;
•    our ability to anticipate and satisfy guest demands, including through the introduction of new features, amenities or services;
•    expectations about our geographic market mix and product mix between hotels and apartments, and their impact on our financial results;
•    our plans to roll out additional features, amenities and technologies, and our beliefs about the positive impact of our technology investments on our brand and financial results;
•    our future competitive advantages and anticipated differentiation in cost structure and guest experience compared to other accommodation providers;
•    expectations for increased cost efficiencies and technological improvements;
•    expectations and plans for expanding in existing and new markets and accommodation categories;
•    the anticipated growth in our portfolio of Live Units and Contracted Units, including the anticipated scope and timing of any removals of units from our portfolio;
•    expectations about our relationships with third-party distribution channels and indirect channels, and the percentage of future revenue attributable to bookings through indirect channels;
•    anticipated seasonality and other variations in our results of operations from period-to-period, including statements about anticipated Revenue per Available Room (“RevPAR”) in specified quarters;
•    the anticipated effects of the COVID-19 pandemic or other public health crises;
•    our ability to continue meeting the listing standards of Nasdaq;
•    our assessments and beliefs regarding the timing and outcome of pending legal proceedings and any liability that we may incur as a result of those proceedings;
•    our assessments and estimates that determine our effective tax rate and regarding any tax-related audits or other tax proceedings; and
•    other expectations, beliefs, plans, strategies, anticipated developments, and other matters that are not historical facts.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
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You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control. Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
For a discussion of our risk factors, see the section entitled “Risk Factors” herein. Additional factors that could cause results or performance to materially differ from those expressed in our forward-looking statements are detailed in other filings we may make with the Securities and Exchange Commission (“SEC”), copies of which are available from us at no charge. Please consider our forward-looking statements in light of those risks as you read this report. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
(Unaudited)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash$317,324 $69,726 
Restricted cash1,131 215 
Accounts receivable, net of allowance of $1,194 and $4,127 at September 30, 2022 and December 31, 2021, respectively
5,658 4,638 
Prepaid rent— 2,957 
Prepaid expenses7,530 5,029 
Other current assets10,435 16,416 
Total current assets342,078 98,981 
Property and equipment, net35,469 27,461 
Operating lease right-of-use ("ROU") assets1,139,713 — 
Other non-current assets15,272 22,037 
Total assets$1,532,532 $148,479 
Liabilities, mezzanine equity, and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$9,236 $19,096 
Accrued liabilities16,504 19,557 
Sales tax payable14,368 8,412 
Deferred revenue49,431 18,811 
Current portion of long-term debt— 13,116 
Convertible notes— 184,636 
Current operating lease liabilities146,550 — 
Other current liabilities2,349 — 
Total current liabilities238,438 263,628 
Non-current operating lease liabilities1,082,412 — 
Deferred rent— 66,132 
Long-term debt, net166,707 10,736 
Other non-current liabilities5,844 3,906 
Total liabilities1,493,401 344,402 
Commitments and contingencies (Note 10)
Mezzanine equity:
Redeemable convertible preferred stock— 518,750 
Exchangeable preferred stock— 49,733 
Total mezzanine equity— 568,483 
Stockholders’ equity (deficit):
Common stock21 
Additional paid-in capital930,588 43,106 
Cumulative translation adjustment19,216 7,299 
Accumulated deficit(910,694)(814,812)
Total stockholders’ equity (deficit)39,131 (764,406)
Total liabilities, mezzanine equity, and stockholders’ equity (deficit)$1,532,532 $148,479 
See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share information)
(Unaudited)
Three months ended
September 30,
Nine months ended
September 30,
2022202120222021
Revenue$124,526 $67,454 $326,314 $146,281 
Costs and operating expenses:
Cost of revenue (excluding depreciation and amortization)76,884 52,402 229,967 135,352 
Operations and support55,586 36,592 157,856 96,904 
General and administrative33,016 21,694 101,274 78,458 
Research and development6,936 5,443 22,649 12,828 
Sales and marketing13,372 6,724 35,247 14,123 
Restructuring and other charges— — 4,033 — 
Total costs and operating expenses185,794 122,855 551,026 337,665 
Loss from operations(61,268)(55,401)(224,712)(191,384)
Interest expense, net4,112 13,279 16,696 29,628 
Change in fair value of SPAC Warrants1,305 — (36,329)— 
Change in fair value of Earn Out liability2,223 — (94,299)— 
Change in fair value of share-settled redemption feature and gain on conversion of convertible notes— — (29,512)— 
Other expense (income), net5,175 (4,229)14,050 (4,164)
Total non-operating expenses (income), net12,815 9,050 (129,394)25,464 
Loss before income taxes(74,083)(64,451)(95,318)(216,848)
Provision for income taxes416 133 564 226 
Net loss$(74,499)$(64,584)$(95,882)$(217,074)
Less: Net loss attributable to convertible and exchangeable preferred stockholders— — (3,886)— 
Net loss attributable to common stockholders$(74,499)$(64,584)$(91,996)$(217,074)
Basic net loss per common share$(0.35)$(5.29)$(0.45)$(18.92)
Diluted net loss per common share$(0.35)$(5.29)$(0.45)$(18.92)
Other comprehensive loss:
Net loss$(74,499)$(64,584)$(95,882)$(217,074)
Change in foreign currency translation adjustment4,833 (1,120)11,916 1,714 
Comprehensive loss $(69,666)$(65,704)$(83,966)$(215,360)
See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY (DEFICIT)
Nine months ended September 30, 2022
(In thousands, except share information)
(Unaudited)

Redeemable
Convertible Preferred
Stock
Exchangeable
Preferred Stock
Common StockExchangeable
Series AA Stock
Post-Combination Exchangeable Common StockAdditional
Paid-in
Capital
Accumulated
Translation
Adjustment
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 202175,767,082 $518,750 12,570,228 $49,733 8,684,246 $9,421,190 $— — $— $43,106 $7,299 $(814,812)$(764,406)
Retroactive adjustment to reflect the exchange ratio due to business combination35,504,342 — 5,890,381 — 4,067,416 — 4,414,740 — — — — — — — 
Balance at December 31, 2021, as adjusted
111,271,424 $518,750 18,460,609 $49,733 12,751,662 $13,835,930 $— — $— $43,106 $7,299 $(814,812)$(764,406)
Exercise of common stock options— — — — 362,943 — — — — — 873 — — 873 
Conversion of Sonder Legacy Warrants from liabilities to equity— — — — — — — — — — 2,111 — — 2,111 
CEO promissory note settlement— — — — (2,725,631)— — — — — — — — — 
Conversion of Sonder Legacy Warrants— — — — 155,239 — — — — — 1,243 — — 1,243 
Conversion of convertible note— — — — 19,017,105 — — — — 159,172 — — 159,173 
Conversion of preferred stock(111,271,424)(518,750)— — 111,271,424 11 — — — — 518,750 — — 518,761 
Conversion of exchangeable stock— — (18,460,609)(49,733)— — (13,835,930)— 32,296,539 — 49,733 — — 49,733 
Issuance of common stock in connection with business combination and PIPE offering— — — — 43,845,835 — — — — 267,355 — — 267,362 
Assumption of SPAC Warrants upon consummation of business combination— — — — — — — — — — (38,135)— — (38,135)
Earn Out liability recognized upon consummation of business combination— — — — — — — — — — (98,117)— — (98,117)
Issuance of Delayed Draw Warrants— — — — — — — — — — 5,598 — — 5,598 
Stock-based compensation— — — — — — — — — — 6,680 — — 6,680 
Components of comprehensive loss:— — — — — — — — — — — — — 
Net income— — — — — — — — — — — — 22,392 22,392 
Change in cumulative translation adjustment— — — — — — — — — — — 1,999 — 1,999 
Balance at March 31, 2022— $— — $— 184,678,577 $20 — $— 32,296,539 $— $918,369 $9,298 $(792,420)$135,267 

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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Nine months ended September 30, 2022 (continued)
(In thousands, except share information)
(Unaudited)

Redeemable
Convertible Preferred
Stock
Exchangeable
Preferred Stock
Common StockExchangeable
Series AA Stock
Post-Combination Exchangeable Common StockAdditional
Paid-in
Capital
Accumulated
Translation
Adjustment
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at March 31, 2022— $— — $— 184,678,577 $20 — $— 32,296,539 $— $918,369 $9,298 $(792,420)$135,267 
Exercise of common stock options— — — — 375,891 — — — — — 574 — — 574 
Vesting of restricted stock units — — — — 29,742 — — — — — 57 — — 57 
Conversion of exchangeable stock— — — — 4,259,343 — — — (4,259,343)— — — — — 
Stock-based compensation— — — — — — — — — — 5,054 — — 5,054 
Components of comprehensive loss:
Net loss— — — — — — — — — — — — (43,775)(43,775)
Change in cumulative translation adjustment— — — — — — — — — — — 5,085 — 5,085 
Balance at June 30, 2022— $— — $— 189,343,553 $20 — $— 28,037,196 $— $924,054 $14,383 $(836,195)$102,262 
Exercise of common stock options— — — — 159,329 — — — — — 129 — — 129 
Vesting of restricted stock units— — — — 503,742 — — — — — — — — — 
Conversion of exchangeable stock— — — — 7,203,032 — — (7,203,032)— — — — 
Stock-based compensation— — — — — — — — — — 6,405 — — 6,405 
Components of comprehensive loss:— — — — — — — — — — — — — — 
Net loss— — — — — — — — — — — — (74,499)(74,499)
Change in cumulative translation adjustment— — — — — — — — — — — 4,833 — 4,833 
Balance at September 30, 2022— $— — $— 197,209,656 $21 — $— 20,834,164 $— $930,588 $19,216 $(910,694)$39,131 

See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Nine months ended September 30, 2021
(In thousands, except number of shares and par amount information)
(unaudited)

Redeemable
Convertible Preferred
Stock
Exchangeable
Preferred Stock
Common StockExchangeable
Series AA Stock
Post-Combination Exchangeable Common StockAdditional
Paid-in
Capital
Accumulated
Translation
Adjustment
Accumulated
Deficit
Total
Stockholders’
Deficit
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 202075,664,679 $517,730 12,579,755 $49,733 7,169,758 $9,437,358 $— — $— $13,898 $5,666 $(520,425)$(500,860)
Retroactive adjustment to reflect the exchange ratio due to business combination35,456,366 — 5,894,873 — 3,359,582 — 4,422,311 — — — — — — — 
Balance at December 31, 2020, as adjusted
111,121,045 $517,730 18,474,628 $49,733 10,529,340 $13,859,669 $— — $— $13,898 $5,666 $(520,425)$(500,860)
Issuance of Series E Convertible Preferred Stock136,390 1,020 — — — — — — — — — — — — 
Exercise of common stock options— — — — 379,462 — — — — — 746 — — 746 
Stock-based compensation— — — — — — — — — — 14,153 — — 14,153 
Components of comprehensive loss:— — — — — — — — — — — — — 
Net loss— — — — — — — — — — — — (78,541)(78,541)
Change in cumulative translation adjustment— — — — — — — — — — — 1,145 — 1,145 
Balance at March 31, 2021111,257,435 $518,750 18,474,628 $49,733 10,908,802 $13,859,669 $— — $— $28,797 $6,811 $(598,966)$(563,357)
Exercise of common stock options— — — — 938,128 — — — — — 1,377 — — 1,377 
Exercise of common stock warrants— — — — 82,352 — — — — — 120 — — 120 
Stock-based compensation— — — — — — — — — — 2,448 — — 2,448 
Components of comprehensive loss:
Net loss— — — — — — — — — — — — (73,949)(73,949)
Change in cumulative translation adjustment— — — — — — — — — — — 1,689 — 1,689 
Balance at June 30, 2021111,257,435 $518,750 18,474,628 $49,733 11,929,282 $13,859,669 $— — $— $32,742 $8,500 $(672,915)$(631,672)
Exchange of Series AA stock to common stock— — — — 23,744 — (23,744)— — — — — — — 
Exercise of common stock options— — — — 489,014 — — — — — 956 — — 956 
Vesting of restricted stock units— — — — — — — — — — — — — — 
Conversion of exchangeable stock— — — — — — — — — — — — — — 
Stock-based compensation— — — — — — — — — — 3,573 — — 3,573 
Components of comprehensive loss:
Net loss— — — — — — — — — — — — (64,584)(64,584)
Change in cumulative translation adjustment— — — — — — — — — — — (1,120)— (1,120)
Balance at September 30, 2021111,257,435 $518,750 18,474,628 $49,733 12,442,040 $13,835,925 $— — $— $37,271 $7,380 $(737,499)$(692,847)
Note: Share amounts may not recalculate due to application of exchange ratio. See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
September 30,
20222021
Cash flows from operating activities:
Net loss $(95,882)$(217,074)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization17,801 12,689 
Stock-based compensation18,139 20,174 
Amortization of operating lease right-of-use assets105,569 — 
Straight-line rent— 12,895 
Unrealized loss on foreign currency transactions13,092 2,129 
Capitalization of interest on long-term debt12,544 — 
Amortization of debt issuance costs149 1,562 
Amortization of debt discounts3,374 23,009 
Change in fair value of share-settled redemption feature and gain on conversion of convertible notes(29,512)(7,828)
Change in fair value of warrants— 1,395 
Change in fair value of SPAC Warrants(36,329)— 
Change in fair value of Earn Out Liability(94,299)— 
Other operating activities1,362 846 
Changes in:— — 
Accounts receivable, net(1,560)(6,115)
Prepaid expenses(2,543)3,787 
Other current and non-current assets10,750 (11,921)
Accounts payable(28,401)(861)
Accrued liabilities2,295 5,937 
Sales tax payable6,181 2,475 
Deferred revenue30,204 20,112 
Operating lease ROU assets and operating lease liabilities, net(58,493)— 
Other current and non-current liabilities1,467 846 
Net cash used in operating activities(124,092)(135,943)

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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)
Nine months ended
September 30,
20222021
Cash flows from investing activities:
Purchase of property and equipment(23,579)(8,036)
Capitalization of internal-use software(2,510)(3,816)
Net cash used in investing activities(26,089)(11,852)
Cash flows from financing activities:
Proceeds from Delayed Draw Notes, net of issuance costs 159,225 — 
Repayment of debt(24,680)(11,900)
Extinguishment of debt(3,065)— 
Proceeds from issuance of debt— 162,366 
Proceeds from business combination and PIPE offering325,928 — 
Common stock issuance costs(58,555)— 
Proceeds from exercise of stock options1,702 3,079 
Proceeds from exercise of common stock warrants— 120 
Issuance of redeemable convertible preferred stock— 1,020 
Net cash provided by financing activities400,555 154,685 
Effects of foreign exchange on cash(1,860)(418)
Net change in cash and restricted cash248,514 6,472 
Cash and restricted cash at beginning of period69,941 123,108 
Cash and restricted cash at end of period$318,455 $129,580 
Supplemental disclosure of cash flow information:
Cash paid for income taxes $488 $213 
Cash paid for interest $2,306 $3,368 
Supplemental disclosure of non-cash investing and financing activities
Accrued purchases of property and equipment$134 $149 
Conversion of Convertible Notes$159,172 $— 
Conversion of Legacy Sonder Warrants$1,243 $— 
Reclassification of liability-classified Legacy Sonder Warrants to equity$2,111 $— 
Recognition of Earn Out Liability$(98,117)$— 
Issuance of Delayed Draw Warrants$5,598 $— 
Reconciliation of cash and restricted cash:
Cash$317,324 $129,365 
Restricted cash1,131 215 
Cash and restricted cash at end of period$318,455 $129,580 
See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of Presentation

Nature of Operations

Sonder Holdings Inc. is headquartered in San Francisco, California, and together with its wholly owned subsidiaries (collectively “Sonder” or the “Company”), provides short and long-term accommodations to travelers in various cities across North America, Europe, and the Middle East. The Sonder units in each apartment-style building and each hotel property are selected, designed, and managed directly by the Company.
On January 18, 2022, the Company consummated the previously announced business combination by and among Gores Metropoulos II, Inc. (“GMII”), Sunshine Merger Sub I, Inc. (“First Merger Sub”), a direct, wholly-owned subsidiary of Second Merger Sub (as defined below), Sunshine Merger Sub II, LLC, a direct, wholly-owned subsidiary of GMII (“Second Merger Sub”), and Sonder Operating Inc., a Delaware corporation formerly known as Sonder Holdings Inc. (“Legacy Sonder”) (the “Business Combination”). Refer to Note 13, Business Combination, for details of the transaction.
Basis of Financial Statement Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”, “U.S. GAAP”, or “generally accepted accounting principles”). The condensed consolidated financial statements include the accounts of Sonder Holdings Inc., its wholly owned subsidiaries, and one variable interest entity (“VIE”) for which it is the primary beneficiary in accordance with consolidation accounting guidance. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position at September 30, 2022 and its results of operations and comprehensive loss, mezzanine equity and stockholders’ equity (deficit), for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The Company’s condensed consolidated results of operations and comprehensive loss, mezzanine equity and stockholders’ equity (deficit) for the three and nine months ended September 30, 2022 and cash flows for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year.

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company evaluates its ownership, contractual, and other interests in entities to assess whether it has a variable interest in entities in which it has a financial relationship and, if so, whether or not those entities are VIEs. These evaluations are complex, involving judgment and the use of estimates and assumptions based on available historical and prospective information, among other factors. For an entity to qualify as a VIE, ASC 810 requires the Company to determine if it is the primary beneficiary of the VIE, and, if so, to consolidate such entity into its consolidated financial statements. If the Company determines that it is not the primary beneficiary of the VIE, the ASC 810 requires the Company, to account for the investment or other variable interest in a VIE in accordance with applicable U.S. GAAP.

The Company consolidates its VIE in which it holds a controlling financial interest, and is therefore deemed the primary beneficiary. The Company will be deemed to hold a controlling financial interest when it: (i) has the power to direct the activities that most significantly impact the economic performance of this VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that, in either case, could potentially be significant to this VIE. Periodically, the Company reevaluates its ownership, contractual, and other interests in entities to determine whether any changes in its interest or relationship with an entity impacts the determination of whether it is still the primary beneficiary of such entity. As of September 30, 2022 and December 31, 2021, the Company’s consolidated VIE was not material to the condensed consolidated financial statements.

The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, may take advantage of specified reduced reporting requirements and deferred accounting standards adoption dates, and is relieved of other significant requirements that are otherwise generally applicable to other public companies.

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Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expense during the reporting periods. Such management estimates include the fair value of share-based awards, estimated useful life of software development costs, bad-debt allowances, valuation of intellectual property and intangible assets, contingent liabilities, and valuation allowance for deferred tax assets, among others. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates.

Reclassification

Certain amounts reported in previous consolidated financial statements have been reclassified to conform to current period presentation. These reclassifications did not affect previously reported amounts of net income, total assets, or total stockholders’ equity (deficit).
Note 2. Recently Issued Accounting Standards

The following reflect recent accounting standards that have been adopted or are pending adoption by the Company. As discussed in Note 1, Basis of Presentation, the Company qualifies as an emerging growth company, and as such, has elected to use the extended transition period for complying with new or revised accounting standards and is not subject to the new or revised accounting standards applicable to public companies during the extended transition period. The accounting standards discussed below indicate effective dates for the Company as an emerging growth company with the extended transition period.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which has subsequently been amended by ASUs 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, 2019-10, and 2020-05. The guidance requires the recognition of ROU assets and lease liabilities on the balance sheet for substantially all leases under U.S. GAAP. The Company has elected to use the transition relief approach as provided in ASU 2018-11, which permits the Company to use January 1, 2022 as both the application date and the adoption date, rather than the modified retrospective approach. The Company also elected certain relief options offered within the new standard, which include the package of practical expedients, the option not to recognize an ROU asset and lease liability that arise from short-term leases (i.e., leases with terms of 12 months or less), and the option of hindsight when determining lease term. Substantially all of the Company’s lease agreements are considered operating leases and were not previously recognized on the Company’s balance sheets. On January 1, 2022, the Company recognized $1.0 billion in operating lease ROU assets, $1.1 billion of operating lease liabilities, and a $66.1 million reduction to deferred rent, which was recorded as a reduction the ROU asset measured on the adoption date. Refer to Note 6, Leases, for further discussion of the Company’s lease accounting.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. For public companies, the guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 beginning January 1, 2021, and the adoption did not have a material impact on its condensed consolidated financial statements.

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Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which has subsequently been amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, and 2019-11. The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. This generally will result in the earlier recognition of allowances for losses and requires increased disclosures. ASU 2016-13 was effective for public business entities for fiscal years beginning after December 15, 2019. In November 2019, FASB issued amended guidance which defers the effective date for emerging growth companies for fiscal years beginning after December 15, 2022, and interim periods therein. The Company is currently evaluating the impact ASU 2016-13 will have on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which was subsequently amended by ASU 2021-04. The guidance provides optional expedients and exceptions to contract modifications and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued. The standard is effective upon issuance through December 31, 2022 and may be applied at the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company does not have any hedging relationships and currently does not have material contracts impacted by reference rate reform; however, the Company will continue to assess contracts through December 31, 2022.
Note 3. Revenue
The Company primarily generates revenues by providing short-term or month-to-month accommodations to its guests. Direct revenue is generated from stays booked through Sonder.com or the Sonder app or directly with our sales personnel, while indirect revenue is generated from stays booked through third-party corporate and online travel agencies (“OTAs”).
The following table sets forth the Company’s total revenues for the periods indicated, disaggregated between direct and indirect revenue (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2022202120222021
Direct revenue$49,392 $33,912 $124,169 $77,968 
Indirect revenue75,134 33,542 202,145 68,313 
Total revenue$124,526 $67,454 $326,314 $146,281 
No individual guest represented over 10.0% of revenues for the three and nine months ended September 30, 2022 and 2021.
Four third-party corporate customers and OTAs represented approximately 26.3%, 16.9%, 15.5%, and 14.8%, respectively, of the net accounts receivable balance at September 30, 2022, and one third-party OTA represented 29.0% of Sonder’s net accounts receivable balance as of December 31, 2021.
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Note 4. Fair Value Measurement and Financial Instruments

Fair Value Hierarchy

Accounting standards require the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Preferred Stock Warrants and Share-Settled Redemption Feature related to the Convertible Notes

At December 31, 2021, the Company did not have observable inputs for the valuation of its preferred stock warrant liabilities or the share-settled redemption feature related to the Company’s convertible promissory notes (the “Convertible Notes”).
The Convertible Notes were initially separated into debt and share-settled redemption feature components and assigned a fair value. The value assigned to the debt component was the estimated fair value as of the issuance date of similar debt without the share-settled redemption feature. The difference between the cash proceeds and the estimated fair value represented the value which was assigned to the share-settled redemption feature and was recorded as a debt discount. The significant unobservable input used in the fair value measurement of the Convertible Notes and the share-settled redemption feature was the fair value of the underlying stock at the valuation measurement date.
At December 31, 2021, the fair value of the preferred stock warrant liabilities was based in part on aggregate equity value indications, consistent with the analysis for the Company’s common stock valuation using the option pricing method. The significant unobservable input used in the fair value measurement of the preferred stock warrant liabilities was the fair value of the underlying preferred stock at the valuation measurement date.
On January 18, 2022, upon the closing of the Business Combination, the outstanding principal balance of the Convertible Notes, the accrued and unpaid interest of the Convertible Notes, and the preferred stock warrants were converted to equity. As such, there were no share-settled redemption features or preferred stock warrant liabilities at September 30, 2022.
SPAC Warrants
As part of the GMII initial public offering (“GMII IPO”), GMII issued 9,000,000 public warrants (the “Public Warrants”) and 5,500,000 private placement warrants (the “Private Placement Warrants”), each of which is exercisable at a price of $11.50 per share (collectively, the “SPAC Warrants”).
Management has determined that the Public Warrants issued in the GMII IPO, which remained outstanding at the closing of the Business Combination and became exercisable for shares of the Company’s common stock, are subject to treatment as a liability. At the closing of the Business Combination and at September 30, 2022, the Company used a Monte Carlo simulation methodology to value the Public Warrants using Level 3 inputs, as the Company did not have observable inputs for the valuation. The significant unobservable inputs used in the fair value measurement of the Public Warrants liability are related to expected share-price volatility of 56.3% and the expected term of 4.30 years years. At September 30, 2022, the Public Warrants were valued at $0.12 per warrant.
The fair value of the Private Placement Warrants was deemed to be equal to the fair value of the Public Warrants, as the Private Placement Warrants have similar terms and are subject to substantially the same redemption features as the Public Warrants. As a result, Level 3 inputs were used to value the Private Placement Warrants.
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Refer to Note 7, Warrants and Stockholders’ Equity (Deficit), for additional information surrounding the SPAC Warrants.

Earn Out

In addition to the consideration paid at the closing of the Business Combination, certain investors may receive their pro rata share of up to an aggregate of 14,500,000 additional shares of the Company’s common stock as consideration upon the common stock achieving certain benchmark share prices, as set forth in the merger agreement (the “Earn Out”).
Management has determined that the Earn Out is subject to treatment as a liability. The Company used a Monte Carlo simulation methodology to value the Earn Out using Level 2 inputs. The key assumptions used in the Monte Carlo simulation are related to expected share-price volatility, expected term, risk-free interest rate, and dividend yield. The expected volatility at September 30, 2022 was derived from the volatility of comparable public companies.

Delayed Draw Warrants

The fair value of the Delayed Draw Warrants (as defined in Note 5, Debt) issued in connection with the Delayed Draw Notes (as defined in Note 5, Debt) was estimated by separating the Delayed Draw Notes into the debt and warrants components and assigning a fair value to each component. The value assigned to the debt component was the estimated fair value as of the issuance date of similar debt without the warrants. The difference between the cash proceeds and the estimated fair value represented the value which was assigned to the Delayed Draw Warrants and recorded as a debt discount. As of the closing of the Business Combination, the fair value of the Delayed Draw Warrants was $5.6 million and was included in additional paid in capital in the condensed consolidated balance sheet.

Disclosures about Fair Value of Financial Instruments

At September 30, 2022, there were no assets or liabilities measured using Level 1 inputs. At September 30, 2022, the Earn Out liability, Public Warrants liability, and Private Placement Warrants liability were included in other non-current liabilities in the condensed consolidated balance sheet. The following table summarizes the Company’s Level 2 and Level 3 financial liabilities measured at fair value on a recurring basis as of September 30, 2022 (in thousands):
Level 2Level 3Total
Earn Out liability$3,818 $— $3,818 
Public Warrants— 1,080 1,080 
Private Placement Warrants— 660 660 
Total financial liabilities measured and recorded at fair value$3,818 $1,740 $5,558 
At December 31, 2021, there were no assets or liabilities measured using Level 1 or Level 2 inputs. At December 31, 2021, the share-settled redemption feature and the preferred stock warrant liabilities were recorded in convertible notes and other non-current liabilities, respectively, in the consolidated balance sheet. The following table summarizes the Company’s Level 3 financial liabilities measured at fair value on a recurring basis as of December 31, 2021 (in thousands):
Level 3
Preferred stock warrant liabilities$3,288 
Share-settled redemption feature30,322 
Total financial liabilities measured and recorded at fair value$33,610 
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The following table represents changes in the Company’s Level 3 liabilities measured at fair value for the nine months ended September 30, 2022 (in thousands):
Level 3
Beginning balance at January 1, 2022$33,610 
Public Warrants liability recognized upon closing of Business Combination23,670 
Private Placement Warrants liability recognized upon closing of Business Combination14,465 
Decrease in fair value of share-settled redemption feature upon conversion of Convertible Notes(30,322)
Decrease in fair value of Public Warrants liability(22,590)
Decrease in fair value of Private Placement Warrants liability(13,805)
Conversion of preferred stock warrant liabilities to equity(3,288)
Total financial liabilities measured and recorded at fair value$1,740 
The following table presents changes in Sonder’s Level 3 liabilities measured at fair value for the year ended December 31, 2021 (in thousands):
Level 3
Beginning balance at January 1, 2021$1,140 
Recognition of share-settled redemption feature45,156 
Decrease in fair value of share-settled redemption feature(14,834)
Increase in fair value of preferred stock warrant liabilities2,148 
Total financial liabilities measured and recorded at fair value$33,610 
There were no transfers of financial instruments between valuation levels during the three and nine months ended September 30, 2022 and the year ended December 31, 2021.

Management estimates that the fair values of its restricted cash, accounts receivable, prepaid rent, prepaid expenses, other current assets, accounts payable, accrued liabilities, sales tax payable, deferred revenue, current portion of long-term debt, convertible notes, and other current liabilities approximates their carrying values due to the relatively short maturity of the instruments. The fair value of the Company’s long-term debt approximates its carrying value because it bears interest at a market rate and all other terms are also reflective of current market terms.

These assumptions are inherently subjective and involve significant management judgment. Any change in fair value is recognized as a component of other expense (income), net, on the condensed consolidated statements of operations and comprehensive loss.
Note 5. Debt

Delayed Draw Note Purchase Agreement

On December 10, 2021, the Company entered into a note and warrant purchase agreement (the “Delayed Draw Note Purchase Agreement”) with certain private placement investors (“Purchasers”) for the sale of delayed draw notes in aggregate of $165.0 million to be available to the Company following the closing of the Business Combination (the “Delayed Draw Notes”).
The Delayed Draw Notes have a maturity of five years from the date of issuance and are subject to interest on the unpaid principal amount at a rate per annum equal to the three-month secured overnight financing rate (“SOFR”) plus 0.3% (subject to a floor of 1.0%) plus 9.0% payable in cash. For the first two years, the Company may elect payment in kind, quarterly in arrears. The Delayed Draw Notes are secured by substantially all of the assets of the Company.
The Delayed Draw Note Purchase Agreement also provided that the Purchasers be issued warrants to purchase shares of common stock in connection with the transaction (the “Delayed Draw Warrants”). As a result, the Purchasers are entitled to purchase an aggregate of 2,475,000 shares of the Company’s common stock, each with an exercise price of $12.50 per share. The Delayed Draw Warrants expire five years after issuance.
The Delayed Draw Note Purchase Agreement includes customary events of default, including failure to pay the note obligations or other amounts when due, material breach of representations or warranties, breach of negative covenants, failure to perform or comply with obligations under the Delayed Draw Notes or the Delayed Draw Note Purchase
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Agreement, acceleration of certain other indebtedness, certain judgements against Sonder, legal processes instituted against Sonder or its assets, issues with the enforceability of the Delayed Draw Note Purchase Agreement and ancillary documents, bankruptcy, insolvency or similar proceedings with respect to Sonder, and orders under debtor relief laws.
In January 2022, upon the closing of the Business Combination, the Company drew $165.0 million in Delayed Draw Notes and issued Delayed Draw Warrants to purchase 2,475,000 shares of common stock to the Purchasers.
Long term debt, net consisted of the following at the dates indicated (in thousands):

September 30, 2022December 31,
2021
Principal balance$177,409 $11,361 
Less: Delayed Draw Warrants liability(5,122)— 
Less: unamortized deferred issuance costs(5,580)(625)
Long-term debt, net$166,707 $10,736 

Convertible Notes
In March 2021, pursuant to a note purchase agreement (the “Note Purchase Agreement”), the Company issued the Convertible Notes to certain investors for an aggregate principal amount of $165.0 million. The net proceeds from the issuance of the Convertible Notes were approximately $162.4 million, net of deferred issuance costs of $2.6 million.
The Convertible Notes were scheduled to mature on March 12, 2022, unless converted in accordance with the conversion terms prior to such date. The Convertible Notes were convertible either automatically, at the option of holders, or at the option of the Company upon the occurrence of certain specified events.
In January 2022, upon the closing of the Business Combination, the outstanding principal and accrued and unpaid interest of the Convertible Notes were automatically converted into 19,017,105 shares of common stock for a value of $159.2 million. As a result, the Company recognized a gain on conversion of $29.5 million as a result of a change in the fair value of the share-settled redemption feature and $159.2 million additional-paid-in-capital. The Company also recognized the change in fair value of the share-settled redemption feature, prior to conversion, of $30.3 million, expense related to the debt discount of $10.0 million and interest expense of $1.4 million.

2018 Loan and Security Agreement

In December 2018, Legacy Sonder entered into a loan and security agreement (the “2018 Loan and Security Agreement”) with certain venture lenders that provided aggregate borrowing capacity of $50.0 million. At December 31, 2021, the Company’s current portion of long-term debt and the non-current portion of long-term debt on the consolidated balance sheet were solely related to the 2018 Loan and Security Agreement, and were net of $0.6 million of deferred issuance costs. At December 31, 2021, unused commitments under the 2018 Loan and Security Agreement were $25.0 million.

In January 2022, upon the closing of the Business Combination, the Company paid $24.5 million of the outstanding principal of the 2018 Loan and Security Agreement and $3.1 million in early termination fees. Additionally, in connection with the repayment of the 2018 Loan and Security Agreement, the Company wrote off $0.4 million of deferred issuance costs and recognized $0.2 million of interest expense.

Credit Facilities

2020 Credit Facility: In February 2020, Legacy Sonder entered into a revolving credit agreement (the “2020 Credit Facility”) for an aggregate principal balance of $50.0 million with a maturity date of February 21, 2023. Balances may be borrowed against the facility as revolving loans or used for the issuance of letters of credit. Loans under the 2020 Credit Facility may be base rate loans or Eurodollar rate loans, plus a margin of 2.0% per annum. The 2020 Credit Facility includes: (i) a letter of credit fee for each letter of credit equal to 1.5% per annum times amount available to be drawn under such letter of credit and (ii) a non-use fee equal to 0.3% times the actual daily amount by which the aggregate commitments provided by facility exceed the sum of the outstanding amount of loans and letters of credit.
The extensions of credit under the 2020 Credit Facility are guaranteed by certain of the Company’s subsidiaries and secured on a senior basis by a lien on substantially all of the Company’s and certain of its subsidiaries’ assets.
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At September 30, 2022 and December 31, 2021, the Company was in compliance with all financial covenants related to the 2020 Credit Facility. Additionally, at September 30, 2022 and December 31, 2021, there were no borrowings outstanding on the 2020 Credit Facility. Outstanding letters of credit at September 30, 2022 totaled $34.0 million.

2020 Québec Credit Facility: In December 2020, a Canadian subsidiary of the Company entered into an agreement with Investissement Québec, a Quebecois public investment entity, that provides a loan facility of CAD $25.0 million and an additional loan, referred to as a conditional-refund financial contribution (“CRFC”), of CAD $5.0 million (the “2020 Québec Credit Facility”). The loan and the CRFC bear interest at a fixed rate of 6.0% per annum for a period of 10 years starting from the first date of the loan disbursement. At September 30, 2022 and December 31, 2021, the Company was in compliance with all financial covenants related to the 2020 Québec Credit Facility, but have not yet met the drawdown requirements, and as such, there have been no borrowings against the 2020 Québec Credit Facility.

Restricted Cash
Throughout 2022 and 2021, the Company entered into multiple cash collateral agreements in connection with the issuance of letters of credit and corporate credit card programs. At September 30, 2022 and December 31, 2021, the Company had $1.1 million and $0.2 million, respectively, of cash collateral which is reported as restricted cash on the Condensed Consolidated Balance Sheets.
Note 6. Leases
The Company leases buildings or portions of buildings for guest usage, warehouses to store furniture, and corporate offices under noncancellable operating lease agreements, which expire through 2039. The Company is required to pay property taxes, insurance, and maintenance costs for certain of these facilities.
The Company adopted ASC 842, Leases (“ASC 842”), effective January 1, 2022, using the modified retrospective approach. This approach allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the condensed consolidated financial statements in the period of adoption without restating prior periods. The Company has elected to apply the new guidance at the date of adoption without restating prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed it to carry forward the historical determination of contracts as leases, lease classification, and not reassess initial direct costs for historical lease arrangements. Accordingly, previously reported financial statements, including footnote disclosures, have not been restated to reflect the application of the new standard to all comparative periods presented.
The Company has lease agreements with lease and non-lease components, including embedded leases, and has elected to utilize the practical expedient to account for lease and non-lease components together in the condensed consolidated statements of operations.
Operating lease ROU assets are included within operating lease right-of-use assets in the condensed consolidated balance sheets. The corresponding operating lease liabilities are included within current operating lease liabilities and non-current operating lease liabilities in the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
The adoption of ASC 842 had a material impact on the Company’s condensed consolidated financial statements. On January 1, 2022, the Company recognized $1.0 billion in operating lease ROU assets, $1.1 billion of operating lease liabilities, and a $66.1 million reduction to deferred rent, which was recorded as a reduction to the ROU asset measured on the adoption date. The standard did not materially impact the Company’s condensed consolidated statement of operations and comprehensive loss and condensed consolidated statement of cash flows.
Lease expense for fixed operating lease payments is recognized on a straight-line basis over the lease term. The Company’s assessed lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Certain operating leases provide for annual increases to lease payments based on an index or rate. Management estimates the annual increase in lease payments based on the index or rate at the lease commencement date, for both the Company’s historical leases and for new leases commencing after January 1, 2022.
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Components of operating lease expense were as follows for the periods indicated (in thousands):

Three months ended September 30, 2022Nine months ended September 30, 2022
Operating lease cost$61,498 $191,908 
Short-term lease cost1,951 2,430 
Total operating lease cost$63,449 $194,338 

Supplemental information related to operating leases was as follows for the periods indicated (in thousands):

Three months ended September 30, 2022Nine months ended September 30, 2022
Cash payments for operating leases$64,690$171,292
New operating lease ROU assets obtained in exchange for operating lease liabilities$73,007$199,875

At September 30, 2022, the weighted-average remaining lease term was 7.21 years and the weighted-average discount rate used to determine the net present value of the lease liabilities was 9.5%.

At September 30, 2022, remaining maturities of operating lease obligations were as follows (in thousands):
Remainder of 2022
$59,907 
2023263,330 
2024252,202 
2025237,237 
2026212,799 
2027170,179 
Thereafter
504,964 
Gross lease payments1,700,618 
Less: imputed interest463,188 
Total operating lease obligations, net 1
$1,237,430 
1 Total operating lease obligations, net excludes $8.5 million of FF&E allowances for leases that have not yet commenced. As such, total operating lease obligations, net per the above table does not agree to the condensed consolidated balance sheet.

The Company does not have material lease receivables from noncancellable lease contracts that would reduce the total contractual operating lease obligations. At September 30, 2022, the Company has entered into leases that have not yet commenced with future lease payments totaling $1.9 billion, excluding purchase options, that are not yet recorded on the condensed consolidated balance sheets and are not reflected in the table above. These leases will commence between 2022 and 2026 with non-cancelable lease terms of three to 15 years.
Rental expense for operating leases for the three months ended September 30, 2022 and 2021 was $61.5 million and $46.9 million, respectively, of which $63.6 million and $45.0 million, respectively, is recognized in cost of revenues, $0.5 million and $1.1 million, respectively, in operations and support, and $0.9 million and $0.8 million, respectively, in general and administrative. Rental expense for operating leases for the nine months ended September 30, 2022 and 2021 was $193.8 million and $125.5 million, respectively, of which $189.6 million and $119.2 million, respectively, is recognized in cost of revenues, $1.4 million and $3.8 million respectively, in operations and support, and $2.8 million and $2.5 million, respectively, in general and administrative.
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Supplemental Information for Comparative Periods
At December 31, 2021, prior to the adoption of ASC 842, future minimum payments lease payments under non-cancelable operating leases were as follows (in millions):
2022$279,093 
2023366,299 
2024418,156 
2025433,541 
2026403,582 
Thereafter1,641,237 
Total minimum future lease payments$3,541,908 
Note 7. Warrants and Stockholders’ Equity (Deficit)
The condensed consolidated statements of mezzanine equity and stockholders’ equity (deficit) reflect the closing of the Business Combination on January 18, 2022. As Legacy Sonder was deemed the accounting acquirer in the Business Combination with GMII, all periods prior to the closing date reflect the balances and activity of Legacy Sonder. The balances at December 31, 2021 from the consolidated financial statements of Legacy Sonder as of that date, share activity (redeemable convertible preferred stock, exchangeable shares, and common stock), and per share amounts were retroactively adjusted, where applicable, using the recapitalization exchange ratio of 1.4686. All redeemable convertible preferred stock classified as mezzanine equity was converted into common stock, and reclassified into permanent equity as a result of the Business Combination.

Preferred Stock Warrants

The Company had the following preferred stock warrants outstanding at December 31, 2021 (number outstanding and exercise price are prior to the application of the recapitalization exchange ratio discussed above):
Type of WarrantNumber OutstandingIssuance DateExercise PriceExpiration Date
Series A59,440 10/20/2016$1.36 10/20/2026
Series B57,696 1/30/2018$2.40 1/30/2028
Series C218,417 12/28/2018$5.04 12/28/2025
Series D71,456 2/21/2020$10.50 2/21/2027
Upon the closing of the Business Combination, (i) the Series A and Series B preferred stock warrants were converted into 150,092 post-combination shares of the Company’s common stock for a value of $1.2 million, and (ii) the Series C and Series D preferred stock warrants automatically converted into warrants to purchase shares of the Company’s common stock.
The Series C and Series D preferred stock warrants are accounted for as equity in accordance with ASC 815-40, Derivatives and Hedging – Contracts on an Entity’s Own Equity (“ASC 815-40”). Upon the closing of the Business Combination, the Company reclassified $2.0 million related to such warrants from other non-current liabilities to equity in the condensed consolidated balance sheet.

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Common Stock Warrants

Delayed Draw Warrants: The Delayed Draw Warrants are accounted for as equity-classified warrants in accordance with ASC 815-40. Upon the closing of the Business Combination, the value of the Delayed Draw Warrants was $5.6 million and was recorded within additional paid-in capital in the condensed consolidated balance sheets. The purchasers of the Delayed Draw Notes were also provided with customary registration rights for the shares issuable upon exercise of the Delayed Draw Warrants.

Public Warrants: The Public Warrants remained outstanding at the closing of the Business Combination and became exercisable for whole shares of common stock. No fractional Public Warrants were issued upon separation of the units and only whole Public Warrants trade. Accordingly, unless a registered holder purchased at least five units, they were not able to receive or trade a whole Public Warrant. The Public Warrants will expire on January 18, 2027, or earlier upon redemption or liquidation.

The Public Warrants are accounted for as liabilities, as there are certain terms and features of the warrants that do not qualify for equity classification in accordance with ASC 815-40. The fair value of the Public Warrants upon the closing of the Business Combination was a liability of $23.6 million, and was recorded in other non-current liabilities in the condensed consolidated balance sheet. At September 30, 2022, the fair value was $1.1 million and was recorded in other non-current liabilities in the condensed consolidated balance sheet. The change in fair value of $0.8 million and $22.5 million for the three and nine months ended September 30, 2022, respectively, is reflected as other income in the condensed consolidated statements of operations and comprehensive loss.

Private Placement Warrants: The Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants, except that the Private Placement Warrants may be physical (cash) or net share (cashless) settled and are not redeemable, so long as they are held by Gores Metropoulos Sponsor II, LLC (the “Sponsor”) or its permitted transferees, and are entitled to certain registration rights. The sale of the Private Placement Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

The Private Placement Warrants are accounted for as liabilities, as there are certain terms and features that do not qualify for equity classification in accordance with ASC 815-40. The fair value of the Private Placement Warrants upon the closing of the Business Combination was a liability of $14.5 million, which was recorded in other non-current liabilities in the condensed consolidated balance sheet. At September 30, 2022, the fair value was $0.7 million and was recorded in other non-current liabilities in the condensed consolidated balance sheet. The change in fair value of $0.5 million and $13.8 million for the three and nine months ended September 30, 2022, respectively, is reflected as other income in the condensed consolidated statements of operations and comprehensive loss.

Exchangeable Stock
Upon the closing of the Business Combination, each share of Sonder Canada Inc., a corporation existing under the laws of the province of Québec (“Legacy Sonder Canada”) exchangeable common stock (“Legacy Sonder Canada Exchangeable Stock” and collectively, “Legacy Sonder Canada Exchangeable Shares”) was exchanged into a new series of the same class of virtually identical Legacy Sonder Canada Exchangeable Common Stock (“Post-Combination Exchangeable Common Stock” and collectively, “Post-Combination Exchangeable Shares”) exchangeable for the Company’s common stock. At September 30, 2022, the Company had the following authorized and outstanding Post-Combination Exchangeable Common Stock (in thousands except per share amounts):

Shares
Authorized
Shares
Issued and
Outstanding
Issuance
Price
 Per Share
Net
 Carrying
Value
Aggregate
Liquidation
Preference
Post-Combination Exchangeable Common Stock40,000,000 20,834,164 $1.54 $32,081 $32,081 
The net carrying value of the Post-Combination Exchangeable Shares is included in additional paid-in capital in the condensed consolidated balance sheets.
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At December 31, 2021, the Company had the following authorized and outstanding Exchangeable Shares, prior to the application of the recapitalization exchange ratio discussed above (in thousands except shares and per share amounts):
 Shares
Authorized
Shares
Issued and
Outstanding
Issuance
Price
Per Share
Net
Carrying
Value
Aggregate
Liquidation
Preference
Series AA Common22,517,608 9,421,190 $— $— $— 
Series Seed 12,588,866 2,588,866 $0.53 $1,359 $1,372 
Series Seed 21,209,160 1,209,160 $0.50 $606 $605 
Series Seed 3704,380 704,380 $1.09 $787 $768 
Series A183,420 183,420 $1.36 $250 $250 
Series B2,335,500 2,335,500 $2.40 $5,610 $5,605 
Series C3,175,207 3,175,207 $5.04 $15,991 $16,003 
Series D2,057,926 1,953,125 $10.50 $20,600 $20,600 
Series E420,570 420,570 $10.77 $4,530 $4,530 
Total exchangeable shares35,192,637 21,991,418 $— $49,733 $49,733 
Upon the closing of the Business Combination, all the Exchangeable Shares were automatically converted into 32,296,539 Post-Combination Exchangeable Shares for a value of $49.7 million (or 21,991,418 shares prior to the application of the recapitalization exchange ratio discussed above).

Redeemable Convertible Preferred Stock

The Company had the following authorized and outstanding redeemable convertible preferred stock at December 31, 2021, prior to the application of the recapitalization exchange ratio discussed above (in thousands except per share amounts):
Shares
Authorized
Shares
Issued and
Outstanding
Issuance
Price
 Per Share
Net
 Carrying
Value
Aggregate
Liquidation
Preference
Series Seed 13,702,526 785,420$0.53 $269 $416 
Series Seed 1-A3,702,526 328,2400.53 $174 $174 
Series Seed 21,719,560 470,9940.50 $222 $235 
Series Seed 2-A1,719,560 39,4060.50 $20 $20 
Series Seed 3704,380 1.09 $— $— 
Series Seed 3-A704,380 1.09 $— $— 
Series A7,023,193 6,780,3331.36 $9,241 $9,221 
Series A-17,023,193 1.36 $— $— 
Series B15,611,276 13,218,0802.40 $27,105 $31,723 
Series B-115,611,276 2.40 $— $— 
Series C19,070,648 12,143,6315.04 $56,496 $61,204 
Series C-119,070,648 3,513,5365.04 $17,708 $17,708 
Series D21,603,476 3,481,89310.50 $35,808 $36,560 
Series D-121,603,476 16,049,36510.50 $168,518 $168,518 
Series E34,932,992 18,956,18410.77 $203,189 $204,159 
Total redeemable convertible preferred stock173,803,110 75,767,082— $518,750 $529,938 
Upon the closing of the Business Combination, all the shares of redeemable convertible preferred stock were automatically converted into shares of post-combination common stock for a value of $518.8 million.

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Common and Preferred Stock
The Company’s amended and restated certificate of incorporation following the Business Combination authorizes the issuance of 690,000,000 shares, consisting of: (a) 440,000,000 shares of general common stock (“General Common Stock”), including: (i) 400,000,000 shares of common stock, and (ii) 40,000,000 shares of Special Voting Common Stock (“Special Voting Common Stock”), and (b) 250,000,000 shares of preferred stock, par value $0.0001 per share (“Preferred Stock”).
As of September 30, 2022, the Company had reserved the following shares of common stock for future issuance:
September 30, 2022
Conversion of exchangeable shares20,873,522 
Outstanding stock options32,655,185 
Outstanding restricted stock units (“RSUs”)26,337,247 
Outstanding market stock units (“MSUs”)14,499,972 
Outstanding warrants liability14,499,966 
Shares issuable pursuant to Earn Out liability14,500,000 
Outstanding Delayed Draw Note warrants liability2,475,000 
Shares available for grant under the Employee Stock Purchase Plan5,251,225 
Shares available for grant under the 2021 Equity Incentive Plan13,466,630 
Total common stock reserved for future issuance144,558,747 
As of December 31, 2021, the Company reserved the following shares of common stock for future issuance:
December 31, 2021
Conversion of preferred stock and exchangeable shares(1)
208,995,747 
Outstanding stock options
19,865,244 
Options available for grant under the 2019 Equity Incentive Plan
1,859,784 
Total common stock reserved for future issuance
230,720,775 
____________
(1)Includes the warrants reclassified to equity as of December 31, 2021 and those issued in connection with the 2018 Loan and Security Agreement and related amendment as of December 31, 2021.
Note 8. Equity Incentive Plans and Stock-Based Compensation
Equity Incentive Plans
2013 and 2019 Equity Incentive Plans: Prior to the closing of the Business Combination, Legacy Sonder provided for the grant of stock-based awards to purchase or directly issue shares of common stock to employees, directors, and consultants through its 2013 and 2019 Equity Incentive Plans (the “Legacy Equity Incentive Plans”). Options were granted at a price per share equal to the fair value of the underlying common stock at the date of grant. Stock options generally had a 10-year contractual term and vest over a four-year period starting from the date specified in each agreement.
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Each Legacy Sonder stock option from the Legacy Equity Incentive Plans that was outstanding immediately prior to the closing of the Business Combination, whether vested or unvested, was converted into an option to acquire a number of shares of common stock (the “Exchanged Options”) equal to the product of: (i) the number of shares of Legacy Sonder common stock subject to such Legacy Sonder option immediately prior to the closing of the Business Combination; and (ii) the recapitalization option exchange ratio, as discussed in Note 13, Business Combination. The Exchanged Options are exercisable at an exercise price per share equal to: (i) the exercise price per share of such Legacy Sonder option immediately prior to the closing of the Business Combination; divided by (ii) the recapitalization exchange ratio. Except as specifically provided in the Merger Agreement (as defined in Note 13, Business Combination), following the Business Combination, each Exchanged Option will continue to be governed by the same terms and conditions as were applicable to the corresponding former Legacy Sonder option immediately prior to the Business Combination. All stock option activity was retroactively restated to reflect the Exchanged Options.
Sonder Holdings Inc. 2021 Management Equity Incentive Plan: In connection with the Business Combination, GMII’s stockholders approved the 2021 Management Equity Incentive Plan (the “2021 Management Equity Incentive Plan”). Employees, including directors and officers, and consultants who receive awards under the 2021 Management Equity Incentive Plan may receive their pro-rata share of awards up to an aggregate of 14,500,000 shares of common stock that will vest upon the common stock achieving certain benchmark share prices as contemplated by the Merger Agreement (as defined in Note 13, Business Combination). If these benchmark share prices are not achieved within the period specified in the Merger Agreement (as defined in Note 13, Business Combination), the unvested awards will not be issued.
Sonder Holdings Inc. 2021 Equity Incentive Plan: In connection with the Business Combination, GMII’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”). The 2021 Equity Incentive Plan became effective upon the closing of the Business Combination and succeeds the Legacy Equity Incentive Plans. Under the 2021 Equity Incentive Plan, the Company may grant options, stock appreciation rights, restricted stock, RSUs, and performance awards to employees, directors, and consultants. Options are granted at a price per share equal to the fair value of the underlying common stock at the date of grant. Options granted are exercisable over a maximum term of 10 years from the date of grant. RSUs typically have a cliff vesting period of one year and continue to vest quarterly thereafter. The Company is authorized to issue up to 26,002,371 shares under this plan, of which 13,466,630 shares remain available for future grants at September 30, 2022.
The total number of shares that may be issued under the 2021 Equity Incentive Plan will automatically increase on the first trading day of each calendar year, beginning with calendar year 2022, by a number of shares equal to the least of: (i) 32,820,155 shares; (ii) 12.5% of the total number of shares outstanding as of immediately following the closing of the Business Combination (including the number of shares of common stock reserved for issuance upon the exchange of Canadian Exchangeable Shares (as defined in the Merger Agreement) issued in the Sonder Canada Share Capital Reorganization (as defined in the Merger Agreement) corresponding to shares of company special voting stock to be issued immediately following the closing of the Business Combination); (iii) five percent (5.0%) of the total number of shares outstanding on the last day of the immediately preceding fiscal year; and (iv) a lesser number of shares determined by the administrator.
Sonder Holdings Inc. 2021 Employee Stock Purchase Plan: In connection with the Business Combination, GMII’s stockholders approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employees to purchase shares of the Company’s common stock at 85.0% of stock price on the first trading day of the offering period or on the last day of the offering period, whichever is lower. Employees can contribute up to 15.0% of their eligible compensation to purchase shares. The ESPP provides for either (i) a 27-month offering period, or (ii) such shorter period as may be established by the administrator from time to time. The Company is authorized to issue up to 5,251,225 shares under the ESPP, of which all shares remain available for future issuance as of September 30, 2022.
The number of shares of common stock available for issuance under the ESPP will automatically be increased on the first day of each fiscal year, beginning with 2022 and ending with the 2041 fiscal year equal to the least of: (i) 6,564,031 shares of common stock; (ii) 2.5% of the total number of shares of common stock outstanding immediately following the closing of the Business Combination (including the number of shares of common stock reserved for issuance upon the exchange of Canadian Exchangeable Shares (as defined in the Merger Agreement) issued in the Sonder Canada Share Capital Reorganization (as defined in the Merger Agreement) corresponding to shares of Company special voting stock to be issued immediately following the closing of the Business Combination); (iii) one percent (1.0%) of the outstanding shares of Common Stock on the last day of the immediately preceding fiscal year; or (iv) a lesser number of shares determined by the administrator.

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Stock-based Compensation Expense

Total stock-based compensation expense is as follows for the periods indicated (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2022202120222021
Operations and support$1,333 $639 $3,305 $1,579 
General and administrative4,110 2,405 12,130 17,524 
Research and development855 475 2,441 1,016 
Sales and marketing107 54 263 55 
Total stock-based compensation expense$6,405 $3,573 $18,139 $20,174 
Stock options

The Company measures stock-based compensation expense for stock options at the grant date fair value of the award and recognizes the expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair value of stock options is estimated using the Black-Scholes option-pricing model. During the three and nine months ended September 30, 2022, the Company recorded stock-based compensation expense from stock options of approximately $4.0 million and $12.1 million. During the three and nine months ended September 30, 2021, the Company recorded stock-based compensation expense from stock options of approximately $3.6 million and $8.6 million.

The Company recognizes only the portion of the option award granted that is ultimately expected to vest as compensation expense and elects to recognize gross share-based compensation expense with actual forfeitures as they occur.

Fair Value of Stock Options: The fair value of each stock option award is estimated using the Black-Scholes option-pricing model, which uses the fair value of the Company’s common stock and requires the input of the following subjective assumptions:
Expected term. The expected term for options granted to employees, officers, and directors is based on the historical pattern of option exercise behavior and the period of time they are expected to be outstanding. The expected term for options granted to consultants is determined using the remaining contractual life of the option.
Expected volatility. The expected volatility is based on the average volatility of similar public entities within the Company’s peer group as the Company’s stock has not been publicly trading for a long enough period to rely on its own expected volatility.
Expected Dividends. The dividend assumption is based on the Company’s historical experience. To date, Company has not paid any dividends on its common stock.
Risk-Free Interest Rate. The risk-free interest rate used in the valuation is the implied yield currently available on the United States Treasury zero-coupon issues, with a remaining term equal to the expected life term of the Company’s options.
The following table summarizes the key assumptions used to determine the fair value of the Company’s stock options granted to employees, non-employees, officers, and directors:
Three months ended September 30,Nine months ended September 30,
2022202120222021
Expected term (in years)6.074.00
4.09 - 6.07
3.99 - 4.00
Expected volatility50.0 %64.0 %
 50.0%-55.4%
64.0 %
Dividend yield— %— %— %— %
Risk-free interest rate2.89 %0.61 %
 1.79%-2.93%
0.41% - 0.61%
Weighted-average grant-date fair value per share$1.09 $6.59 
 $0.87 - $2.13
$4.54 - $6.59
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Performance and Market-based Equity Awards
On November 15, 2019, the Legacy Sonder Board of Directors (the “Legacy Sonder Board”) granted an award to Francis Davidson, the Company’s Chief Executive Officer (“CEO”), for a total of 5,613,290 options (the “2019 CEO Option Award”), which Mr. Davidson exercised in full in December 2020, with a promissory note payable to the Company in the amount of $24.6 million (the “Promissory Note”). 2,041,197 of these options vest in 72 equal monthly installments starting as of October 1, 2017 (the “Service-Based Options”), subject to Mr. Davidson’s continuous employment with the Company, and 3,572,093 options are performance-based (the “CEO Performance Awards”) that vest as follows, subject to Mr. Davidson’s continuous employment with the Company at each such event (the “Performance Conditions”): (i) 1,530,897 performance awards upon an initial public offering (“IPO”), if certain share price targets are met (the “IPO Condition”); (ii) 1,020,598 performance awards upon a qualified financing at certain valuation milestones (the “Qualified Financing Condition”); and (iii) 1,020,598 performance awards upon Sonder achieving a certain market capitalization milestone (the “Market Capitalization Condition”).
The fair value of the Service-Based Options was estimated using the Black-Scholes option pricing model. The grant date fair value of these awards was $3.2 million and was recognized on a straight-line basis over the term of the award. The Company recognized $11.6 million in expense for the CEO Performance Awards during the nine months ended September 30, 2021. The Company did not recognize any expense for the CEO Performance Awards for the three months ended September 30, 2021 and 2022, or the nine months ended September 30, 2022.
During the three months ended March 31, 2021, the CEO Performance Awards were modified to accelerate the vesting of the IPO Condition and the Qualified Financing Condition because the Legacy Sonder Board desired to reward Mr. Davidson in leading the Company to perform above expectations given the economic impact of the COVID-19 pandemic, especially in the hospitality sector, and additionally, engaging the Company in potential strategic transactions which resulted in increased company valuations. While the vesting of the options under the Market Capitalization Condition were not accelerated by the Legacy Sonder Board, the Legacy Sonder Board approved a resolution clarifying that the Market Capitalization Condition would be eligible to vest in connection with a business combination with a special purpose acquisition company that otherwise achieves the applicable Market Capitalization Condition using an equivalent share price rather than the market capitalization.
During the three and nine months ended September 30, 2022, Sonder recognized $0.5 million and $3.2 million in stock-based compensation expense related to the vesting of the Market Capitalization Condition. In the three and nine months ended September 30, 2021, Sonder did not recognize any stock-based compensation expense relating to the vesting of the Market Capitalization Condition.

The modification-date fair value of the CEO Performance Awards was estimated using a Monte Carlo simulation. The Monte Carlo simulation utilizes multiple input variables to estimate the probability that performance conditions will be achieved. These variables include the Company’s expected stock price volatility over the expected term of the award, historical and projected employee stock option exercise behaviors, and the risk-free interest rate for the expected term of the award. The Company recognizes compensation expense for its performance awards using an accelerated attribution method from the time it is deemed probable that the vesting condition will be met through the time the service-based vesting condition has been achieved.

The Promissory Note bore interest at the rate of 2.0% per annum, compounding semiannually. The principal amounts and accrued interest were due upon the consummation of the Business Combination. The Promissory Note was secured by the shares issued upon exercise of the award and in exchange for the note. While the Promissory Note is full recourse, it was considered to be non-recourse for accounting purposes and thus was not recorded in the condensed consolidated balance sheets as a receivable. At December 31, 2021, the aggregate borrowings outstanding under the Promissory Note, including interest, was $25.2 million.
On January 14, 2022, the aggregate outstanding principal amount and interest under the Promissory Note was repaid in full as a result of Mr. Davidson selling 1,855,938 shares of Legacy Sonder common stock to the Company at a repurchase price of $13.85 per Legacy Sonder common share (number of shares and amount per share is not adjusted for the application of the recapitalization exchange ratio discussed above), which was equal to the fair value of a share of Legacy Sonder common stock as of the repurchase date, for a total aggregate repurchase price of $25.7 million.
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