Sonder Won't Enter Cash Flow Positive Territory in 2023

25.08.2023 - 13:36 / skift.com / Dennis Schaal / Francis Davidson

Sonder executives put a positive spin on how the business is trending, but there is evidently very little hope of achieving its previously articulated goal of positive free cash flow in 2023.

In the struggling hospitality company’s first quarter shareholder letter that it released Wednesday, co-founder and CEO Francis Davidson pointed to a $21 million improvement in free cash flow compared with the year-ago period. But that free cash flow stood at negative $41 million at the end of the seasonally weak January through March period this year.

“This is far better than the average $15 million reduction we saw in the 3 quarters since we announced our shift from hypergrowth to cash flow positivity,” Davidson wrote, adding that he expects further improvements in the second quarter, and better results in the second half of 2023.

Sonder, which faces a potential delisting if its share price lingers below $1 per share, saw its share price drop more than 16 percent in after-hours trading Wednesday night to around $0.41 per share following its first quarter earnings announcement.

“While we’re disappointed in the price at which shares have been trading hands we’ll stay focused on driving improvement in fundamentals and are optimistic that the tide will turn in due time,” Davidson wrote.

During a discussion with financial analysts, Sonder officials pointed to some positive trends.

Davidson said overhead costs fell 20 percent year over year in the first quarter, and the number of live units, including hotel rooms and short-term rentals in multifamily buildings, increased 35 percent year over year to 10,400.

However, the size of Sonder’s total portfolio, including live units and those under contract but not operational, fell 6 percent year over year to 18,200.

Davidson attributed some of that decline to Sonder “cleaning out” of contracts where the financing outlook appeared to be grim because of the banking crisis and the macroeconomic outlook.

In addition to containing overhead costs and opening new properties on a capital light basis, improving revenue per available room is another key element Sonder hopes would make it cash flow positive on a sustainable basis, officials said.

In the first quarter, Sonder’s revenue per available room rose 15 percent to $134 on average.

Sonder’s guidance for the second quarter and the last six months of 2023 showed signs of progress, but would be disappointing to anyone who last year hoped to see some black ink for the company this year.

Sonder projected that its second quarter revenue would land in the $155 million to $165 million range, which add its midpoint would amount to a 32 percent jump compared to the second quarter of 2022.

Sonder said its second quarter guidance