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Sonder Holdings Inc. Announces Amendment to Financing Agreement and Provides Update on Portfolio Optimization Program

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Sonder Holdings (NASDAQ: SOND) announced an amendment to its note and warrant purchase agreement, securing an additional $10 million in commitments to enhance its liquidity. The company also provided an update on its portfolio optimization program initiated in November 2023. As of June 10, 2024, Sonder has signed agreements to exit or reduce rent for 105 buildings (4,300 units), expecting annualized free cash flow improvements of over $40 million, with termination fees under $20 million. CEO Francis Davidson emphasized the company's strengthened balance sheet and optimized lease portfolio, aiming for sustainable positive free cash flow and high-quality guest experiences.

Positive
  • Secured additional $10 million in financing commitments.
  • Expected annualized run-rate free cash flow improvements exceed $40 million.
  • Termination fees associated with exiting agreements are less than $20 million.
  • Optimized lease portfolio by exiting or reducing rent for 105 buildings (4,300 units).
  • Exited approximately 60 buildings (2,300 units) out of 80 with finalized exit agreements.
  • Enhanced liquidity and financial foundation.
Negative
  • Termination fees of less than $20 million still pose a financial burden.
  • Potential operational disruptions during the exit period for remaining buildings in 2024.

Sonder Holdings Inc.'s recent amendment to its financing agreement and updates on its portfolio optimization program offer critical insights into the company's ongoing financial health and strategic direction. The additional $10 million in financing is a key move to bolster liquidity, which is essential for maintaining operational flexibility, especially in a capital-intensive industry like hospitality. This liquidity boost could be seen as a buffer against unexpected expenses and a resource for potential growth initiatives.

The portfolio optimization program is designed to significantly improve the company's cash flow by exiting or renegotiating underperforming leases. Exiting or reducing rent for 105 buildings, leading to estimated annualized free cash flow improvements of over $40 million, indicates a proactive approach in managing expenses. However, the termination fees, which are expected to be less than $20 million, need careful management to avoid negating the benefits of the optimization program.

For the retail investor, the immediate improvement in liquidity and the positive cash flow projection could be seen as promising signs. However, it is important to monitor whether the company can meet its targets without incurring significant additional costs. Short-term benefits include immediate liquidity boost and reduced operational expenses. Long-term benefits could arise from a leaner, more efficient property portfolio. Investors should keep an eye on the actual savings realized versus projected ones to ensure the company's strategy is on track.

The hospitality sector, particularly companies like Sonder that position themselves as technology-driven disruptors, heavily relies on efficient cost management to maintain competitiveness. By optimizing its lease portfolio, Sonder is addressing a critical aspect of its business model. Reducing exposure to underperforming properties while negotiating better lease terms aligns with market trends where flexibility and cost-efficiency are paramount.

The expected annualized $40 million in free cash flow improvements suggests that Sonder is positioning itself better against market volatility. However, the success of this strategy hinges on the company's ability to continue attracting guests to its remaining properties. The hospitality market is highly competitive and customer satisfaction, driven by the guest experience, plays a important role. For retail investors, the alignment of these operational improvements with guest satisfaction metrics will be a key indicator of long-term viability.

Investors should also consider the broader market context, including economic conditions that could impact travel and lodging demand. While Sonder's strategy seems sound, external factors such as economic downturns or shifts in travel patterns could affect the company's performance.

The amendment to Sonder's financing agreement and its portfolio optimization efforts reflect significant strategic decisions with potential legal implications. The renegotiation and termination of leases involve complex legal processes, including the management of associated termination fees, which are projected to be under $20 million. Ensuring these processes are handled smoothly is critical to avoid protracted legal disputes that could erode the expected financial benefits.

Investors should be mindful of the legal risks associated with lease terminations, especially if the company faces resistance from landlords or other stakeholders. Additionally, the terms of the new financing agreement should be scrutinized for any covenants or conditions that might impact the company's operational flexibility.

From a legal perspective, the successful execution of these plans without significant litigation or additional costs would mark a positive outcome for Sonder. However, the potential for legal disputes remains a risk factor that investors should consider.

SAN FRANCISCO, June 11, 2024 (GLOBE NEWSWIRE) -- Sonder Holdings Inc. (NASDAQ: SOND) (“Sonder” or the “Company”), a leading next-generation hospitality company that is redefining the guest experience through technology and design, today announced that it has entered into an amendment to its existing note and warrant purchase agreement (the “Financing”) with a syndicate of investors, which provides for, among other things, additional commitments with an aggregate principal amount of $10 million, which will improve the Company’s unrestricted liquidity.

Update on Portfolio Optimization Program

As announced in November 2023, Sonder implemented a portfolio optimization program to mitigate losses related to select underperforming properties and assess the Company’s portfolio of rents relative to current operations and the existing market rents. As of June 10, 2024, the Company has signed agreements to exit or reduce rent for approximately 105 buildings (4,300 units), which is expected to lead to estimated annualized run-rate free cash flow improvements of over $40 million. The Company expects termination fees of less than $20 million associated with these agreements. Of the approximately 80 buildings (3,200 units) with finalized exit agreements, the Company has already exited approximately 60 buildings (2,300 units) and expects to exit the remaining buildings throughout the remainder of 2024.

Francis Davidson, Co-Founder and CEO of Sonder, said, “Sonder’s business has shown remarkable resilience and we continue to take decisive action to optimize our cost structure and deliver sustainable positive free cash flow as soon as possible. The confidence from our investors is a testament to the force of our global brand and the meaningful progress we have made to strengthen our financial foundation. With a stronger balance sheet and an optimized lease portfolio, we are on the right path to achieve our financial goals while delivering Sonder’s high-quality, design-forward guest experience in prime locations.”

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based upon current expectations or beliefs, as well as assumptions about future events. Forward-looking statements include all statements that are not historical facts and can generally be identified by terms such as “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” or “will” or similar expressions and the negatives of those terms. These statements include, but are not limited to, statements regarding improvements in liquidity; the anticipated outcomes of Sonder’s ongoing portfolio optimization program, including the timing, scope and impact of additional property exits, including related fees and charges, and expected rent reductions and other free cash flow improvements; statements about potential cost structure improvements and efforts toward achieving profitability and sustainable free cash flow; and other information concerning Sonder’s financial goals and estimated, possible or assumed future financial or operating results and measures, cash flow, or liquidity. These forward-looking statements are based on management’s current expectations, estimates, and beliefs, as well as a number of assumptions concerning future events. Actual results could differ materially from those expressed in or implied by the forward-looking statements due to a number of risks and uncertainties, including but not limited to: the risk that the Financing will not provide the anticipated benefits; risks and uncertainties associated with the Company’s portfolio optimization program, including uncertainties related to the timing and extent of property exits and of terminations or other changes to the Company’s leases, and the related fees, accounting charges and other costs; uncertainties concerning the Company’s previously announced financial restatement process, including the possibility that additional accounting errors or corrections will be identified and the possibility of additional delays in the Company’s SEC filings; uncertainties associated with the Company’s liquidity, debt, and capital resources, including the risk that the Company’s efforts to conserve cash will be unsuccessful and that additional funding or other sources of liquidity will not be available on acceptable terms or at all; the risk that the Company will be unsuccessful in achieving positive Free Cash Flow; and the other risks and uncertainties described in the Company’s SEC reports, including its Current Report on Form 8-K dated as of the date hereof, and under the heading “Risk Factors” in its most recent annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements contained herein speak only as of the date of this press release. Except as required by law, the Company does not undertake any obligation to update or revise its forward-looking statements to reflect events or circumstances after the date of this press release.

About Sonder

Sonder (NASDAQ: SOND) is revolutionizing hospitality through innovative, tech-enabled service and inspiring, thoughtfully designed accommodations combined into one seamless experience. Launched in 2014, Sonder provides a variety of accommodation options — from spacious rooms to fully-equipped suites and apartments — found in over 40 markets spanning ten countries and three continents. The Sonder app gives guests full control over their stay. Complete with self-service features, simple check-in and 24/7 on-the-ground support, amenities and services at Sonder are just a tap away, making a world of better stays open to all.

To learn more, visit www.sonder.com or follow Sonder on Instagram,  Linkedin or X.

Download the Sonder app on Apple or Google Play.

Investor Relations:

ir@sonder.com

Media:

press@sonder.com

Dan Moore / Tali Epstein
Collected Strategies
Sonder-CS@collectedstrategies.com


FAQ

What amendment did Sonder Holdings announce on June 11, 2024?

Sonder Holdings announced an amendment to its note and warrant purchase agreement, securing an additional $10 million in financing commitments.

What is the impact of Sonder Holdings' portfolio optimization program?

The program is expected to improve annualized run-rate free cash flow by over $40 million by exiting or reducing rent for 105 buildings.

How many buildings has Sonder Holdings exited as part of its portfolio optimization as of June 10, 2024?

Sonder Holdings has exited approximately 60 buildings out of 80 with finalized exit agreements.

What are the expected termination fees related to Sonder Holdings' portfolio optimization program?

The expected termination fees are less than $20 million.

What are the goals of Sonder Holdings' portfolio optimization program?

The goals are to optimize cost structure, improve free cash flow, and strengthen the company's financial foundation.

Sonder Holdings Inc.

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