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Table of Contents
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 March 31, 2023
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 219,282,857 shares of common stock outstanding as of May 3, 2023.


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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 focus on achieving positive Free Cash Flow without additional fundraising and to target “capital light” lease signings, whereby real estate owners fund the vast majority of our upfront capital expenditures in exchange for slightly higher rents, 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;
•    our ability to continue meeting the listing standards of Nasdaq;
•    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;
•    anticipated occupancy rates and expectations about guests’ average length of stay;
•    expectations about our geographic market mix and product mix between hotels and apartments, and their impact on our financial results;
expectations about employee relations and our ability to attract and retain qualified personnel;
•    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;
•    our ability to anticipate and satisfy guest demands, including through the introduction of new features, amenities or services;
•    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;
•    trends in corporate travel and the potential for additional group and corporate travel revenue;
•    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;
•    the anticipated effects of the COVID-19 pandemic or other public health crises;
•    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.

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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.

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)
(Unaudited)
March 31, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$217,968 $246,624 
Restricted cash28,436 42,562 
Accounts receivable, net of allowance of $1,346 and $972 at March 31, 2023 and December 31, 2022, respectively
6,990 5,613 
Prepaid expenses5,128 8,066 
Other current assets12,708 10,065 
Total current assets271,230 312,930 
Property and equipment, net35,432 34,926 
Operating lease right-of-use ("ROU") assets1,201,007 1,209,486 
Other non-current assets13,791 16,270 
Total assets$1,521,460 $1,573,612 
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable$14,093 $16,082 
Accrued liabilities18,230 20,131 
Taxes payable16,497 14,418 
Deferred revenue58,424 41,664 
Current operating lease liabilities172,422 158,346 
Total current liabilities279,666 250,641 
Non-current operating lease liabilities1,156,913 1,166,538 
Long-term debt, net179,665 172,950 
Other non-current liabilities2,043 3,430 
Total liabilities1,618,287 1,593,559 
Commitments and contingencies (Note 10)
Stockholders’ deficit:
Common stock21 21 
Additional paid-in capital959,789 947,601 
Cumulative translation adjustment10,348 12,985 
Accumulated deficit(1,066,985)(980,554)
Total stockholders’ deficit(96,827)(19,947)
Total liabilities and stockholders’ deficit$1,521,460 $1,573,612 
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) INCOME
(In thousands, except per share information)
(Unaudited)
Three months ended March 31,
20232022
Revenue$120,738 $80,466 
Costs and operating expenses:
Cost of revenue (excluding depreciation and amortization)92,033 73,896 
Operations and support56,157 48,267 
General and administrative32,745 36,981 
Research and development6,580 7,625 
Sales and marketing15,836 9,461 
Restructuring and other charges2,130  
Total costs and operating expenses205,481 176,230 
Loss from operations(84,743)(95,764)
Interest expense, net5,707 8,202 
Change in fair value of SPAC Warrants110 (14,895)
Change in fair value of Earn Out Liability(1,498)(73,177)
Change in fair value of share-settled redemption feature and gain on conversion of convertible notes (29,512)
Other (income) expense, net(2,712)2,624 
Total non-operating expense (income), net1,607 (106,758)
(Loss) income before income taxes(86,350)10,994 
Provision for income taxes81 31 
Net (loss) income$(86,431)$10,963 
Less: Net income attributable to convertible and exchangeable preferred stockholders 1,406 
Net (loss) income attributable to common stockholders$(86,431)$9,557 
Basic net (loss) income per common share$(0.39)$0.05 
Diluted net loss per common share$(0.39)$(0.18)
Other comprehensive (loss) income:
Net (loss) income$(86,431)$10,963 
Change in foreign currency translation adjustment(2,637)1,999 
Comprehensive (loss) income$(89,068)$12,962 
See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Three months ended March 31, 2023 and 2022
(In thousands, except share information)
(Unaudited)
Common StockPost-Combination Exchangeable Common StockAdditional
Paid-in
Capital
Accumulated
Translation
Adjustment
Accumulated
Deficit
Total
Stockholders’
Deficit
SharesAmountSharesAmount
Balance at December 31, 2022198,394,331 $21 20,389,216 $ $947,601 $12,985 $(980,554)$(19,947)
Exercise of common stock options9,266 — — — 8 — — 8 
Vesting of restricted stock units517,068 — — — — — —  
Conversion of exchangeable stock930,512 — (930,512)— — — —  
Stock-based compensation— — — — 12,180 — — 12,180 
Components of comprehensive loss:
Net loss— — — — — — (86,431)(86,431)
Change in cumulative translation adjustment— — — — — (2,637)— (2,637)
Balance at March 31, 2023199,851,177 $21 19,458,704 $ $959,789 $10,348 $(1,066,985)$(96,827)
See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (continued)
Three months ended March 31, 2023 and 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 $1 9,421,190 $  $ $43,106 $7,299 $(814,812)$(764,406)
Retroactive adjustment to reflect the exchange ratio due to business combination35,504,342 — 5,929,180 — 4,067,956 — 4,414,756 —  — — — — — 
Balance at December 31, 2021, as adjusted
111,271,424 $518,750 18,499,408 $49,733 12,752,202 $1 13,835,946 $  $ $43,106 $7,299 $(814,812)$(764,406)
Exercise of common stock options— — — — 362,943 — — — — — 873 — — 873 
Conversion of Legacy Sonder Warrants from liabilities to equity— — — — — — — — — — 2,111 — — 2,111 
CEO promissory note settlement— — — — (2,725,631)— — — — — — — — — 
Conversion of Legacy Sonder Warrants— — — — 155,239 — — — — — 1,243 — — 1,243 
Conversion of convertible note— — — — 19,017,105 1 — — — — 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— — (18,499,408)(49,733)— — (13,835,946)— 32,335,354 — 49,733 — — 49,733 
Issuance of common stock in connection with business combination and PIPE offering— — — — 43,845,835 7 — — — — 267,355 — — 267,362 
Assumption of SPAC Warrants upon consummation of business combination— — — — — — — — — — (25,985)— — (25,985)
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— — — — — — — — — — — — 10,963 10,963 
Change in cumulative translation adjustment— — — — — — — — — — — 1,999 — 1,999 
Balance at March 31, 2022 $  $ 184,679,117 $20  $ 32,335,354 $ $930,519 $9,298 $(803,849)$135,988 
See accompanying notes to unaudited condensed consolidated financial statements.
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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended March 31,
20232022
Cash flows from operating activities:
Net (loss) income$(86,431)$10,963 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization7,048 5,630 
Stock-based compensation12,180 6,680 
Amortization of operating lease ROU assets45,627 37,646 
(Gain) loss on foreign exchange(2,311)2,379 
Capitalization of paid-in-kind interest on long-term debt6,345  
Amortization of debt issuance costs2 8,750 
Amortization of debt discounts368 (3,007)
Change in fair value of share-settled redemption feature and gain on conversion of convertible notes (29,512)
Change in fair value of SPAC Warrants110 (14,895)
Change in fair value of Earn Out Liability(1,498)(73,177)
Other operating activities622 682 
Changes in:
Accounts receivable, net(1,962)3,233 
Prepaid expenses3,055 (9,408)
Other current and non-current assets332 4,429 
Accounts payable(2,026)(22,009)
Accrued liabilities(2,060)4,742 
Taxes payable2,020 2,963 
Deferred revenue16,703 15,253 
Operating lease ROU assets and operating lease liabilities, net(33,695)(5,200)
Other current and non-current liabilities79 3,165 
Net cash used in operating activities(35,492)(50,693)

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SONDER HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)
Three months ended March 31,
20232022
Cash flows from investing activities:
Purchase of property and equipment(6,924)(10,539)
Capitalization of internal-use software(554)(1,077)
Net cash used in investing activities(7,478)(11,616)
Cash flows from financing activities:
Proceeds from Delayed Draw Notes 159,225 
Repayment of debt and payment of early termination fees (27,745)
Proceeds from business combination and PIPE Investment 325,928 
Common stock issuance costs (58,555)
Proceeds from exercise of stock options8 873 
Net cash provided by financing activities8 399,726 
Effects of foreign exchange on cash180 (327)
Net change in cash, cash equivalents, and restricted cash(42,782)337,090 
Cash, cash equivalents, and restricted cash at beginning of period289,186 69,941 
Cash, cash equivalents, and restricted cash at end of period$246,404 $407,031 
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ $381 
Cash paid for interest $713 $1,873 
Supplemental disclosure of non-cash investing and financing activities
Accrued purchases of property and equipment$51 $1,789 
Conversion of Convertible Notes$ $159,172 
Conversion of Legacy Sonder Warrants$ $1,243 
Reclassification of liability-classified Legacy Sonder Warrants to equity$ $2,111 
Recognition of Earn Out Liability$ $(98,117)
Recognition of SPAC Warrants$ $(25,985)
Issuance of Delayed Draw Warrants$ $5,598 
Conversion of Exchangeable Stock$ $49,733 
Conversion of Redeemable Convertible Preferred Stock$ $518,750 
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents$217,968 $406,348 
Restricted cash28,436 683 
Cash, cash equivalents, and restricted cash at end of period$246,404 $407,031 
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., together with its wholly owned subsidiaries (collectively, the “Company”), provides short and long-term accommodations to travelers in various cities across North America, Europe, and the Middle East. The 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”), two subsidiaries of GMII, 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 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 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 March 31, 2023 and December 31, 2022 and its results of operations and comprehensive (loss) income, stockholders’ deficit, and cash flows for the three months ended March 31, 2023 and 2022. The Company’s condensed consolidated results of operations and comprehensive (loss) income, stockholders’ deficit, and cash flows for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year.

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.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company manages the credit risk associated with cash and cash equivalents by investing in lower risk money market funds and by maintaining operating accounts that are diversified among various institutions with good credit quality. The Company maintains cash accounts that, at times, exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. Management believes that it is not exposed to any significant risks on its cash and cash equivalent accounts.

Use of Estimates

The preparation of 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 consolidated financial statements, and the reported amounts of revenue and expense during the reporting periods. Such significant management estimates include the fair value of share-based awards, estimated useful life of long-lived assets, bad-debt allowances, valuation of intellectual property and intangible assets, contingent liabilities, valuation allowance for deferred tax assets, and valuation of non-routine complex transactions, such as recognition of the Earn Out Liability and SPAC Warrants (both as defined below), 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.

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Reclassification

Certain amounts reported in previous condensed 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’ deficit.

Restatement of Previously Reported Financial Statements

Subsequent to the issuance of the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2022, the Company identified and corrected the following:

The Company recorded $12.2 million as an adjustment to correct the initial recorded fair value of $23.7 million for the Public Warrants (as defined below) upon consummation of the Business Combination. This correction was made as a $12.2 million increase to the originally recorded additional paid-in capital and a corresponding reduction to other income in the March 31, 2022 condensed consolidated statements of operations and comprehensive (loss) income. This adjustment, in addition to the adjustment in fair value from the date of the Business Combination to the end of the three months ended March 31, 2022, resulted in a net change in fair value of $11.4 million for the three months ended March 31, 2022.

Management considers such correction to be immaterial to the previously issued condensed consolidated financial statements.

The following table presents only those line items affected by the correction as discussed above (in thousands):

As Previously ReportedAdjustmentsAs Corrected
Statement of Operations and Comprehensive Income
Change in fair value of SPAC Warrants$(26,324)$11,429 $(14,895)
Total non-operating (income) expense, net(118,187)11,429 (106,758)
Income before income taxes22,423 (11,429)10,994 
Net income22,392 (11,429)10,963 
Less: Net income attributable to convertible and exchangeable preferred stockholders2,872 (1,466)1,406 
Net income attributable to common stockholders19,520 (9,963)9,557 
Comprehensive income24,391 (11,429)12,962 
Basic net income per common share$0.11 $(0.06)$0.05 
Statement of Stockholders' Equity
Assumption of SPAC Warrants upon consummation of business combination$(38,135)$12,150 $(25,985)
Net income22,392 (11,429)10,963 
Additional Paid-in Capital918,369 12,150 930,519 
Accumulated Deficit(792,420)(11,429)(803,849)
Total stockholders' equity at March 31, 2022$135,267 $721 $135,988 
Statement of Cash Flows
Cash flows from operating activities
Net income$22,392 $(11,429)$10,963 
Change in fair value of SPAC Warrants(26,324)11,429 (14,895)
Supplemental disclosure of non-cash investing and financing activities
Recognition of SPAC Warrants$(38,135)$12,150 $(25,985)
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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 June 2016, the Financial Accounting Standards Board (“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 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, the 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 adopted this guidance on January 1, 2023 using the modified retrospective basis. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

The Company has not identified any recent accounting pronouncements not yet adopted that are expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

Note 3. Revenue

The Company generates revenues primarily by providing accommodations to its guests. Direct revenue is generated from stays booked through Sonder.com, the Sonder app, or directly through the Company’s sales personnel. Indirect revenue is generated from stays booked through third party online travel agencies (“OTAs”).

The following table sets forth the Company’s total revenues for the periods indicated, disaggregated between direct and indirect (in thousands):
Three months ended March 31,
20232022
Direct revenue$58,339 $31,934 
Indirect revenue62,399 48,532 
Total revenue$120,738 $80,466 

No individual guest represented over 10.0% of revenues for the three months ended March 31, 2023 and 2022.

Three third-party corporate customers and OTAs represented 18.4%, 16.5%, and 13.1%, respectively, of the net accounts receivable balance at March 31, 2023, and four third-party corporate customers and OTAs represented 23.8%, 18.3%, 17.0%, and 11.8%, respectively, of the net accounts receivable balance as of December 31, 2022.

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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.

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 SPAC Warrants issued in the GMII IPO, which remained outstanding at consummation of the Business Combination and became exercisable for shares of the Company’s common stock, are subject to accounting treatment as a liability. At the consummation of the Business Combination and at March 31, 2023, the Company used the Public Warrants stock price to value the Public Warrants.

At consummation of the Business Combination, the Company used a Monte Carlo simulation methodology to value the Private Placement Warrants using Level 3 inputs, as the Company did not have observable inputs for the valuation. At December 31, 2022, the Company used the Black-Scholes option-pricing model to estimate the fair value of the Private Placement Warrants using Level 3 inputs. During the three months ended March 31, 2022, the Private Placement Warrants were transferred by the original holders and, in accordance with the contractual terms of the Private Placement Warrants, became Public Warrants upon transfer. As such, at March 31, 2023, the Company used the Public Warrants stock price to value all SPAC Warrants.

At March 31, 2023, the SPAC Warrants were valued at $0.07 per warrant.

Refer to Note 7, Warrants and Stockholders’ Deficit, for additional information about the SPAC Warrants.

Earn Out Liability

In addition to the consideration paid at consummation 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 “Earn Out Liability”).

At March 31, 2023, the Company used a Monte Carlo simulation methodology to value the Earn Out using Level 3 inputs. The key assumptions used in the Monte Carlo simulation are related to expected share-price volatility of 65.0%, expected term of 4.26 years to 4.29 years, risk-free interest rate of 3.7%, and dividend yield of 0%. The expected volatility at March 31, 2023 was derived from the volatility of comparable public companies.

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Delayed Draw Warrants

The fair value of the Delayed Draw Warrants (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 value assigned to the Delayed Draw Warrants component was estimated using the Black-Scholes option-pricing model using Level 3 inputs and was considered to be non-recurring in nature, in accordance with ASC 820, Fair Value Measurement. The warrants component was recorded as a debt discount, which is amortized using the effective interest method over the period from the date of issuance through the maturity date. Upon consummation 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 March 31, 2023, the Earn Out Liability and SPAC Warrants liability were included in other non-current liabilities in the condensed consolidated balance sheets. The following table summarizes the Company’s Level 1, Level 2, and Level 3 financial liabilities measured at fair value on a recurring basis as of March 31, 2023 (in thousands):


Level 1Level 3Total
Earn Out Liability$ $919 $919 
SPAC Warrants1,015  1,015 
Total financial liabilities measured and recorded at fair value$1,015 $919 $1,934 

At December 31, 2022, the Earn Out Liability and SPAC Warrants liability were included in other non-current liabilities in the condensed consolidated balance sheets. The following table summarizes the Company’s Level 1, Level 2, and Level 3 financial liabilities measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

Level 1Level 3Total
Earn Out Liability$ $2,417 $2,417 
Public Warrants630  630 
Private Placement Warrants 275 275 
Total financial liabilities measured and recorded at fair value$630 $2,692 $3,322 

The following table represents changes in the Company’s Level 3 liabilities measured at fair value for the three months ended March 31, 2023 (in thousands):
Level 3
Beginning balance at January 1, 2023$2,692 
Transfers out of Level 3(275)
Change in fair value of Earn Out Liability(1,498)
Total financial liabilities measured and recorded at fair value$919 

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The following table presents changes in the Company’s Level 3 liabilities measured at fair value for the year ended December 31, 2022 (in thousands):

Level 3
Beginning balance at January 1, 2022$33,610 
Recognition of Earn Out Liability98,117 
Private Placement Warrants liability recognized upon consummation of Business Combination14,465 
Change in fair value of share-settled redemption feature upon conversion of Convertible Notes(30,322)
Change in fair value of Earn Out Liability(95,700)
Change in fair value of Private Placement Warrants liability(14,190)
Conversion of preferred stock warrant liabilities to equity(3,288)
Total financial liabilities measured and recorded at fair value$2,692 

There were no transfers of financial instruments between valuation levels during the three months ended March 31, 2023 and the year ended December 31, 2022, other than the transfer of the Private Placement Warrants when they became Public Warrants, as discussed above.

Management estimates that the fair values of its cash equivalents, restricted cash, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities, sales tax payable, deferred revenue, and other current liabilities approximates their carrying values due to the relatively short maturity of the instruments. The carrying value of the Company’s long-term debt approximates its fair 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, 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 consummation of the Business Combination (the “Delayed Draw Notes”). The Delayed Draw Note Purchase Agreement also provided for the issuance of warrants to purchase an aggregate of 2,475,000 shares of the Company’s common stock with an exercise price of $12.50 per share (the “Delayed Draw Warrants”).

In January 2022, upon consummation 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. 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%. For the first two years, the Company may elect and has elected payment in kind interest, quarterly in arrears. The Delayed Draw Notes are secured by substantially all of the assets of the Company. The Delayed Draw Warrants expire five years after issuance.

Long term debt, net consisted of the following at the dates indicated (in thousands):

March 31, 2023December 31, 2022
Principal balance, including capitalized paid-in-kind interest$189,597 $183,245 
Less: Debt discount related to Delayed Draw Warrants, net of amortization(4,761)(4,945)
Less: unamortized deferred issuance costs(5,171)(5,350)
Long-term debt, net$179,665 $172,950 
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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 consummation 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. In January 2022, upon consummation of the Business Combination, the Company paid $24.7 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.

2022 Loan and Security Agreement

In December 2022, the Company entered into a loan and security agreement with Silicon Valley Bank (“SVB”) (now, a division of First Citizens Bank) (the “2022 Loan and Security Agreement”) for an aggregate principal balance of $60.0 million with a maturity date of December 21, 2025. Balances may be borrowed against the facility as revolving loans or used for the issuance of letters of credit. The 2022 Loan and Security Agreement includes: (i) a letter of credit fee for each letter of credit equal to 1.5% per annum of the dollar equivalent of the face amount of each letter of credit issued and (ii) a non-use fee equal to 0.25% per annum of the average unused portion of the revolving line of credit.

In April 2023, the Company amended the 2022 Loan and Security Agreement. Among other things, the amendment reduces the required cash holdings account balances in the Company’s operating accounts, securities accounts and depository accounts at or through SVB or its affiliates, amends the minimum consolidated adjusted EBITDA financial covenant in the 2022 Loan and Security Agreement, and provides additional flexibility to the Company under certain of the negative covenants in the agreement.

Furthermore, the Company provided cash collateral for all outstanding letters of credit with SVB subsequent to March 31, 2023. As such, the Company is in compliance with all financial covenants related to the 2022 Loan and Security Agreement, as amended, as of the date the condensed consolidated financial statements were issued. Additionally, as of the same dates, there were no borrowings outstanding on the 2022 Loan and Security Agreement. Outstanding letters of credit at March 31, 2023 and December 31, 2022 under the 2022 Loan and Security Agreement totaled $15.2 million and $10.1 million, respectively.

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. In December 2022, the 2020 Credit Facility was terminated in conjunction with the Company obtaining the 2022 Loan and Security Agreement.

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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 March 31, 2023 and December 31, 2022, the Company was in compliance with all financial covenants related to the 2020 Québec Credit Facility, but had not yet met the drawdown requirements, and as such, there have been no borrowings against the 2020 Québec Credit Facility.

Restricted Cash

Throughout 2023 and 2022, the Company entered into multiple cash collateral agreements in connection with the issuance of letters of credit and corporate credit card programs. At March 31, 2023 and December 31, 2022, the Company had $28.4 million and $42.6 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 2044. The Company is required to pay property taxes, insurance, and maintenance costs for certain of these facilities.

The Company has lease agreements with lease and non-lease components and has elected to utilize the practical expedient to account for lease and non-lease components together in the consolidated statements of operations.

Operating lease ROU assets are included within operating lease right-of-use assets in the consolidated balance sheets. The corresponding operating lease liabilities are included within current operating lease liabilities and non-current operating lease liabilities in the 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.

Lease expense for fixed operating lease payments is recognized on a straight-line basis over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

Components of lease expense were as follows (in thousands):

Three months ended March 31,
20232022
Operating lease cost$75,259 $62,947 
Short-term lease cost632 2 
Variable lease cost1,501 643 
Total operating lease cost$77,392 $63,592 

Supplemental information related to operating leases was as follows (in thousands):

Three months ended March 31,
20232022
Cash payments for operating leases$68,215$49,765
New operating lease ROU assets obtained in exchange for operating lease liabilities$38,527