Q2 2022 Rover Group Inc Earnings Call

August 4, 2022

Yeah.

Thank you for standing by and welcome to the second quarter 2022 Rover earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press star one.

Telephone.

As a reminder, today's conference call is being recorded I would now like to the conference host Mr. Walter Roddy, Vice President Investor Relations and capital markets. Please go ahead.

Good afternoon. Thank you for joining us to discuss our second quarter 2022 earnings results. In this call we will be discussing the results announced in our press release issued today. After the market closed which is available on our Investor relations website at investors <unk> Dot com.

As a reminder, this call is being webcast live on our Investor Relations website and is being recorded and will be available for replay from our Investor Relations website. Shortly after this call.

With me on the call. This afternoon is Aaron easterly Chief Executive Officer, and cofounder, Brent Turner, President and Chief operating Officer.

Tracy Knox Chief Financial Officer.

Charlie Records VP of finance et Rover.

Before we begin I'd like to remind everyone that management will make certain forward looking statements within the safe Harbor provisions of the Securities Litigation Reform Act of 1095 on this call identified by the words expect believe will may assume continue plan ongoing and similar expressions.

Forward looking statements are based on current expectations estimates forecasts and projections and beliefs and assumptions of management.

Related to our future financial performance, such as our third quarter 2022, and full year 2022 financial guidance.

For our GAAP and non-GAAP marketing expense as a percentage of revenue.

Marketing investments and initiatives.

And macroeconomic impacts.

Investment and expansion opportunities.

Sure other future events and industry and market conditions and forward looking statements about rover its platform and its domestic and international market opportunity.

These forward looking statements are subject to known and unknown risks uncertainties and assumptions that could cause actual or.

Results or performance to differ materially from those expressed or implied in the forward looking statements.

We strongly encourage you to review the information that we're over files with the SEC regarding specific risks and uncertainties. In particular those that are described in the risk factors section of brokers first quarter 2022, 10-Q filed with the SEC on May 12 2022.

And those that will be disclosed in our second quarter 2022 Form 10-Q.

These forward looking statements speak only as of today.

<unk> undertakes no obligation to update these statements to reflect subsequent events or circumstances, except as required by law.

You should not place undue reliance on our forward looking statements as they are not guarantees of future performance.

Finally during the course of today's call, we will discuss audited and unaudited GAAP unaudited non-GAAP financial measures.

We provide a reconciliation of the non-GAAP measures to the most comparable GAAP measure and the non-GAAP reconciliation supplement which is posted under news <unk> events presentations.

On the Investor Relations section of our website.

The non-GAAP financial measures provided should not be considered as a substitute for or superior to GAAP financial measures.

Unless otherwise noted we will compare all Q2 2022 metrics to Q2 2021 metrics in the call.

Let's get started I'll turn the call over to Aaron easterly co founder and CEO Aaron.

Thank you Walter and thank you everyone for joining us today.

I will begin by discussing our high level second quarter 2022 earnings results give a few other quarters highlights and then provide some commentary on what we're seeing in the market right now.

At that point I will turn it over to Brent to provide you with more details on our bookings and investments.

Tracy will then conclude by walking through the financials and our detailed guidance before we take questions.

Overall, <unk> had another solid quarter, improving both revenue and adjusted EBITDA.

Despite the impact from Covid variance and other potential macro headwinds the business exceed the high end of our guidance range.

Second quarter revenue of $43 $4 million was up 77% year over year.

Gross booking value grew 59% to $212 8 million.

Total bookings were up 35% to $1 4 million.

And adjusted EBITDA was $4 2 million, which was a 68% increase year over year.

Going beyond the recent financial results, we're excited about certain underlying fundamentals.

The value of customers acquired this year is the highest to date despite.

Despite the relatively lower mix of daytime services revenue per customer less the cost of revenue and support are trending higher than the 321 cohort, which were also well above our historical norm and.

In Q2 repeat bookings reached $1 2 million up 40% year over year.

Our 10 years of data collection insights and technology investments are helping identify and reward great interactions on the platform.

And this is showing through in our customer LTV.

Second the strength of our value proposition relative to competitors continues to share.

In addition to posting strong top and bottom line numbers.

We believe that we are continuing to gain noticeable share in the largest markets.

For example, according to third party U S data.

<unk> had more than 13 times the sales of pet services versus the next largest similar player for the 12 months ending June 30.

Up from just over <unk> for the prior 12 month period.

Third our international business has continued its aggressive growth trajectory with <unk>.

CVV increasing to over $3 five times Q2 2021 levels.

He has driven the mix of GBP from non U S markets from 3% in Q2 of last year to 8% this quarter.

This growth is due to rapid expansion of their customer acquisition with Canada, and the U K being the largest contributors.

One particular bright spot is our penetration into European Caf households.

Over the last year, we made a series of investments designed to bring more European cat parents onto our platform.

We're seeing that pay off.

<unk> only GPP in Europe was nine times the prior year period.

More broadly, we see opportunities to invest incrementally in markets, such as France and Spain.

Our international business Leverages much of the technical and data science investments, we have made to support the U S business.

And as such we expect it to not only be a cost effective driver of long term enterprise value, but to also compete effectively versus smaller players that have been unable to invest comparably.

Finally, we saw marked progress in laying the groundwork to expand beyond our current services.

Rover has a unique position in the ecosystem, which we believe creates opportunities for us to solve a greater array of pain points for modern pet parents.

While most of our focus over the last year with scaling our core business, our newly formed corporate strategy and development team has been looking at opportunities to build buy or partner to expand our offerings.

For example, we recently acquired a small early stage doctoring platform.

Overall, we expect to invest low single digit millions of dollars and the remainder of the calendar year to prototype and test expenses are offered.

Plan to share more on this trend in the coming quarters.

While we delivered a strong second quarter and continued to gain market share. We're also seeing some signs of caution in the back half of the year.

What we've observed as the quarter unfolded and continuing into July positions us towards the lower end of our previously communicated full year revenue guidance during the second quarter and continue through July cancellation rates have accelerated after initially dropping materially in February .

In July cancellation rates were roughly 50% higher than the historical norms and are approaching the levels. We saw in July and August of last year. During the Delta waves in January of this year during the omicron way.

Additionally, we are seeing some evidence of a slowdown in new customer category demand.

The Google query volume for some keywords is decreasing year over year compared to the outsized gains of 2021.

There is still significantly above the 2019 levels.

Similarly, we've noticed a slowdown in the year over year growth rates or U S air passengers.

Both of these dynamics are consistent with trends in our marketplace.

Out of our desire to balance growth and profitability, we significantly slowed our hiring starting in Q2 and are adjusting our marketing outlets.

In conclusion, we just reached the anniversary of entering the public markets, it's worth reflecting on the last 12 months.

In that time, we increased revenue approximately 130% over the prior 12 months flipped.

Flip from negative to positive adjusted EBITDA gained market share.

All while ramping our investments in product support and marketing to drive long term enterprise value.

It has been a good 12 months we.

We look forward to growing our position as the world's largest online marketplace for pet care. We are continuing in our mission to make it possible for everyone to experience the unconditional love of a pet.

We will look for and execute on opportunities to expand our business judiciously and with the macroeconomic backdrop in mind.

And now I would like to hand over the call to Brent to provide more details on our bookings operational performance and marketing spend.

Thanks, Darren and greetings to everyone on the call.

I'll first start by adding a bit more color regarding the performance of the business in Q2.

As Aaron mentioned total bookings increased 35% year over year to $1 4 million another all time record quarter for Rover.

With that being said, we observed increasing headwinds, especially towards the end of the quarter and during July as cancellation rates rose and new customer demand softened.

In Q2 worldwide, new customer acquisitions were 260000, an increase of 14% from Q2 2021, when we saw an incredibly strong rebound in pent up organic new customer demand.

Our non U S business also grew its acquisition of new customers nicely.

With the largest absolute numbers coming from Canada, and the U K.

And with similarly impressive growth rates from the rest of Europe .

In Q2, 2022, non-GAAP marketing expense was 24% of revenue up 600 basis points from Q2, 2021, and roughly sequentially flat from Q1 2020 to.

This percentage was towards the top end of our previously mentioned long term in seasonally adjusted range of 18% to 25%.

The higher Q2 percentage compared to 2021 was driven by an increased cancellation rate.

Search spin and ongoing testing of marketing channels.

With respect to marketing testing, we upgraded our ROI measurement during the pandemic with a particular focus on return on video social and similar channels.

As we have mentioned previously we plan to increase marketing spending as we evaluated both the efficiency and scalability of these channels.

We are pleased with the results of our testing from Q1 and Q2.

And we like their implications for our ability to drive efficient new customer acquisitions over time.

However base.

Just on our observations in June and expectations through Q3.

We believe that the macro environment inclusive of Covid impact in the second half may not be conducive to scaling these investments at this time.

As a result for the second half in the context of our current revenue expectation.

We expect marketing as a percentage of revenue to trend lower.

While we continue to make progress in our new customer marketing initiatives. We're also pleased with our repeat bookings, which were $1 2 million for Q2, a year over year increase of 40%.

As discussed last quarter, we continue to leverage our CRM channels as a cost efficient way to invite our existing customers back to the platform.

Further we continue to invest in product and customer experience.

Our ongoing work includes improvements the usability of our apps and testing new ways to improve our platform's ability to create great matches between pet parents and care providers.

We are particularly excited about a number of recent improvements in our trust and safety capabilities.

For example, we have introduced notifications that encourage walkers considers to be mindful with breeds susceptible to heat related issues when temperatures rise.

We believe by continuously improving our product and service pet parents in centers will find increasing value in the robo offering.

We are pleased with the results of our investments to date and the strength of our results. This quarter brokerage continued to execute well, attracting new customers and building scale.

I'll now hand, the call over to Tracy to walk through our financial performance.

Thanks Brent.

I'll begin today by providing an overview of our financial results for the second quarter of 2022, followed by guidance.

Unless noted otherwise I'll be comparing our second quarter results to the same period in 2021.

As a reminder, our discussion of expenses will cover non-GAAP amounts, which exclude stock based compensation expenses.

Revenue in the second quarter was $43 4 million up 77%, while second quarter, <unk> with $212 8 million up 59%.

Our second quarter revenue exceeded our guidance driven by continued increases in average booking value.

Strengthen our European bookings.

Brian already discussed booking, but I want to give a little more color on ABB.

Second quarter, ABB with $147 up 18%.

And by increases in average price per service that by pet care providers on the platform with a skew towards greater growth in the overnight services.

We believe this is due to a continuation of the more significant provider initiated price increases starting in Q2 of 2021.

As a result of our extended stay billing feature which rolled out in Q4 last year.

These price increases can be seen when viewing newer pet parent provider relationships versus those that began more than a year ago with the newer relationships seeing noticeably higher increases the price per unit.

We believe new relationships or more fully reflecting the providers increase and pricing while legacy relationships will lag as providers respect earlier agreed upon pricing with their longer term customers.

This growth in Abb's, along with our solid retention rates has increased expected LTV.

Moving to expenses.

Cost of revenue in the second quarter was $10 5 million or 24% of revenue compared to $6 3 million or 26% of revenue in the prior year period and 28% in the first quarter of 2022.

Both the year over year and sequential improvement with largely driven by the scaling of revenue and leverage achieved on the portion of costs that are more fixed in nature.

Namely amortization of internally developed software and certain technology platform.

non-GAAP marketing expenses were $10 $7 million in the second quarter or 24% of revenue up 600 basis points from Q2, 2021, and roughly flat sequentially from Q1 2022.

The higher Q2 percentage was driven by higher search spend ongoing testing of marketing channels as well as the accelerating cancellation rate that we saw during the quarter.

Of note our advertising expense was the primary driver up 207% as we implemented our strategy to increase our marketing investment while our fixed marketing expenses were up 26%.

As Brent described earlier, we plan to keep our marketing some elevated on absolute basis for the second half of the year versus 2021, but we do expect it to be a lower percentage of revenue relative to the first half of 2022.

Second quarter, non-GAAP operations, and support expenses were $6 1 million or 14% of revenue flat compared to 14% of revenue in Q2 2021.

We continued to see leverage in non-GAAP product development expenses, which were $5 2 million or 12% of revenue compared to $4 7 million or 19% of revenue in Q2 2021.

Second quarter, non-GAAP general and administrative expenses were $8 $8 million or 20% of revenue compared to $5 1 million or 21% of revenue in Q2 2021.

The increase year over year in expense as a result of the investment needed to support our transition into the public market.

While the decline on a percentage basis is due to our scaling of revenues from Q2 2021 in.

In addition, there was a sequential decline in expenses from Q1 2020 to $400000, primarily due to a decrease in professional fees.

Adjusted EBITDA was $4 $2 million or a margin of 10%.

From the adjusted EBITDA of $2 5 million in Q2 of last year.

The improvement in adjusted EBITDA resulted from strong revenue paired with ongoing operational expense efficiencies during the quarter.

From a liquidity perspective, we generated strong cash from operations and our total cash cash equivalents and investments of $288 million is up from $282 million from Q1.

In summary, our business delivered strong top and bottom line results during the quarter.

Now turning to guidance.

Given the context, Erin and Brent articulated we are updating our full year guidance for 2022 to tightened the revenue range to the lower end of our previously provided range and are reducing our adjusted EBITDA guidance.

Both the low and high end of our revenue guidance continues to assume the full year impacts related to omicron and the recent macroeconomic headwinds inclusive of the elevated cancellation rates and softer new customer demand as Aaron described.

The high end of our guidance differs from the low end by assuming more modest impacts of additional COVID-19 waves and no further incremental deterioration in demand due to macroeconomic trends.

For the third quarter of 2022, we expect revenue of $46 million to $48 million.

And adjusted EBITDA of $6 million to $8 million.

For the full year of 2022, we are updating our prior guidance and now expect revenue of $160 million to $166 million and adjusted EBITDA of $10 million to $14 million, which at the midpoint would be a 48% increase in revenue over 2021, and approximately flat and adjusted EBITDA.

Yeah.

The change in the adjusted EBIT guidance is primarily driven by the following.

First our revised revenue guidance, including ongoing elevated cancellation rate.

Of note going forward, a one point improvement in our cancellation rate drives approximately one point of additional adjusted EBITDA margin.

Second she.

Shifts in the marketing mix to a higher proportion of paid and within that a higher proportion of higher cost marketing channels.

And finally, the choice to invest single digit millions in the initial steps to expand our service offerings through the coming quarters.

Well it does have an impact to adjusted EBITDA margin in the near term. We believe that we have optimized our marketing investments for positive payback in ROI and that not pulling back investment as aggressively as we did in 2021 during increased cancellation rate periods will benefit future enterprise value.

In addition, we are excited for the longer term opportunities that we intend to invest in.

Without the impact of these items adjusted EBITDA margin at the midpoint would be approximately flat year over year and in line with the midpoint margin of prior guidance.

Furthermore, without the softening of demand we are now projecting for the second half of this year, our adjusted EBITDA margins would be solidly on the path to our longer term margin goals.

Importantly, we are reiterating our commitment to delivering on our longer term margin goal of over 30% for the core business.

Before I open it up for Q&A I wanted to take a final moment to thank you all again, Aaron and the leadership team, our amazing employees and our stockholders for your continued support as I transition to an advisory role as part of my previously announced retirement.

Truly grateful for my time at Rover.

Especially to have been part of the progress made in our last 12 months as a public company, including growing revenue, 130% over the prior 12 months and generating positive adjusted EBITDA.

I continue to be impressed by Charlie as we've executed our transition process and I am excited to watch him help Rover continue to prosper and grow.

With that I'll turn it to Q&A.

Greater can you open it up for Q&A.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one one on your Touchtone telephone again to ask a question. Please press star 111.

One moment please.

Yes.

Our first question comes from Ralph Shakur of William Blair. Your line is open.

Good afternoon. Thanks for taking the question two if I can first just in terms of the cancellations that cancellation rates. Just curious if you could give some sense of attribution to.

Slowdown in air travel that you called out I think a lot of that occurred towards the end of Q2 versus just a tougher macro environment. Maybe some also some consideration on the increase of pricing.

Being increased by Pip providers, just curious if you give some thoughts of what's perhaps having the most pronounced impact on that I have a follow up.

Hi, Ralph this is Charlie good to hear from you.

With regards to the cancellation rate.

Did increase during the quarter, so as the quarter progressed.

Syed uptick and so we do think that it was.

Partly driven by what we continue to see us ebbs and flows from the pandemic as well as partly attributed to what we're seeing on the on the travel cancellation front as well it is hard to tease those two apart, but we definitely saw a correlation as the quarter went on with those two dynamics.

Ralph Hi, there. This is Darren just add on to that a little bit we do track communications through the platform and one of the things. We track is reason for cancellations in the messaging that goes attached to it.

Saw a marked increase in the number of people that said that they tested positive or sick themselves.

During the period.

So while the overall.

Des.

Are not rising dramatically in the U S. We do still see a significant portion for that.

With regards to the sitter pricing we've looked at this in quite a bit of detail. The system, it's possible that pricing in the broader economy is affecting people's decisions to travel so as energy prices go up as food prices go up as people may feel some economic angst that being said when we look at it in our marketplace, we don't see.

Any impact from provider prices on the decision to continue to book a state.

<unk>.

Little correlation if any with regards to higher prices and people are proceeding to book.

Actually really helpful color just.

Just maybe kind of switching gears to international it seems like some.

Good growth there and you gave some good metrics. Just curious is that just years of hard work all coming together I think you talked about maybe some increased marketing maybe just a little color in terms of what's driving that growth.

Sure Hi, Ralph this is Brad thanks for the question.

We're excited about Europe , we're excited about international generally I think one of the things that this could be a rebound year, particularly in Europe given that they are they opened a little bit later than we did here in the United States generally.

One thing that we.

Believed as a driver of our growth is.

To your point about a bunch of hard work, we did get out into market with our blog and with our PR investments well ahead of the rebound to try to draw to increase awareness, particularly in Europe , and we think we've done a good job there we think that where we are.

Awareness unaided around 11% and most nations Ada.

<unk> balancing between 20 and 30 as well ahead of where the U S business was at a similar level of scale.

That helps explain some of the maturation of the metrics and some of the growth over there.

Right now.

Okay, great. Thank you.

Right.

Thank you. Our next question comes from Maria <unk> with Canaccord. Your line is open.

Just to follow up on your full year guidance. So in addition to heightened cancellations is there anything else you can maybe Shane in terms of new users to the platform user retention.

Spend per user or any specific regions or markets to highlight there.

I was going to say in terms of new users to the platform. We had 260000, which I think was our all time high on new customers and that is a combination of the U S and Europe , which Brent just laid out we're seeing strength in Europe , but we're also still seeing strong new customer volume in the U S.

<unk> from <unk>.

From a cohort or LTV perspective.

We are seeing much higher abv's this quarter than we did last year and so based on that and stronger retention. These look like our best customer cohorts, yet and we're seeing we're projecting the highest ltvs yet.

Hi, Maria this is Aaron it's good to hear your voice does it a little bit of additional color commentary on the new customer side.

We are looking at on the TSA data is actually pretty interesting for US there is normally a seasonal gain between June and July in terms of U S air passengers.

This year actually is had the smallest gained from June to July or any of the last four including 2020.

Both on an absolute basis, meaning that there was actually more the increase in the number of air passengers in 2020 was actually higher than it was this year you also see slowing in the rate of growth versus last year.

The U S air travel data.

And similarly, when you compare 2022 to 2019.

2020 to never caught up to 2019 are part of the explanation for that.

Maybe that there is less business travel rebound, but when you actually look at those numbers the GAAP versus 2019 has actually been growing since April .

Versus closing.

We think that there is a little bit of a travel dynamic that it's like really only became noticeable towards.

The end of the quarter and then we noted also.

We're seeing a similar trend.

In.

Google with regards to the amount of people that are looking for these services than we would expect.

Seasonally based on what we saw in May and June .

So I think got it.

As elevated cancellation rates continuing through the end of the year.

And ongoing softness in demand those are the two got it. Thanks.

Got it that's very helpful. And then maybe just on your continued strength in Europe , but anything you can add in terms of sort of maybe broader macro dynamics, there and then sort of more broadly.

Can you maybe just talk about the competitive dynamics in some of those key markets and you did say that your brand awareness is getting stronger there but.

What's the level of broader category awareness across some of those key markets.

Hi, Maria is spread.

Your voice.

In terms of the competitive dynamic there is a set of.

Small.

And frankly similar side similarly sized competitors in Europe , which makes it different competitive dynamic than the Uni.

It states.

And so we and we do think that one of the reasons, we've been able to build brand awareness for our sales in Europe is because they are actually as a category.

Sure.

Players each of whom is driving awareness of themselves and so and so.

Yes.

Players each of whom is driving awareness of themselves and so the the idea that you would go online to find pet care.

Is actually considered a thing so to speak Europe , whereas when the U S business was at a similar level of scale that was not true.

Yes.

I don't know that we are.

As clear.

On macro environments that might be tailwind for us aside from the fact that the.

Geographies they are opening up.

But I can say that from the standpoint of.

<unk>.

Some of the things that we've tried to do to build awareness in the United States in some cases, they have been more successful.

In Europe and in fact, one of our top blog posts in the globe.

Over the past I think nine months has been a dog named Spain, which has been actually quite viral.

The one other thing I'll add to that piece.

Pieces that have.

With regards to the competitive dynamics it actually varies by country. There are some pan European players there are some country specific players.

When we look at the metrics, we track for relative growth in size in the major markets that we feel confident we seem to be gaining material share so dramatically higher growth rates than the competitive set although it's still earlier in Europe than it is in the U S.

Got it that's very helpful. Thank you very much.

Thank you. Our next question comes from Eric Sheridan of Goldman Sachs. Your line is open.

Okay.

Yes.

Ben side, just wanted to better understand what you meant by upgraded or ROI metrics with Reticular channels evidently that youre looking at maybe in a different way that you have in the past.

And the second part of that question would be are there any channels you are finding greater a rising level of efficacy with from an ROI standpoint that would maybe cause you to re.

Readdress some of those some ROI metrics internally and then secondarily you talked about obviously dialing back the marketing investments in the back part of the year could you just give us a little bit better sense of your lead time of how you think about dialing up or dialing down marketing investments based on what you see in terms of end market dynamics. Thanks, so much.

Sure. Thanks, Eric although these questions.

So.

Over the years, we have like most companies that are attempting to build a category.

<unk> struggled with it.

A set of approaches for trying to.

Quantify the return of channels that are a little bit more of a funnel.

We have worked with click stream, we've worked with panel data and.

What are the pluses that we thought we could make once we get to a certain level of scale is simply go to a methodology, that's a little bit more geographic test over control. The spins that you need to do on a test basis are a little higher so they were not practical when we were more subscale, but today represent.

Small parts of our marketing budget and as what we've moved to now it's not a straightforward thing to do if there is quite a bit of instrumentation and refinement in terms of our calculated approach to make these work, but this is the way we.

<unk> decided to move, particularly for our social due to linear TV streaming TV channels like that.

Yes.

And it's been unfortunate.

Im pleased with our analytics team because.

Yeah.

On a variety of fronts here, largely because we've been able to sort of sidestep a lot of these sort of device tracking complications that have come up because we don't we don't depend on those things to quantify our ROI.

In terms of the lead time to dial back.

The the channels that take the longest or our streaming of linear although I have to say.

We were able to turn those around in.

Single digit weeks.

And Youtube obviously is.

Is instantaneous, it's a matter of bidding not only as a matter of AWN on but we can we can change the way we bid.

The channels that we have been working with our recently I think we've said in previous calls that we were pretty happy with how Youtube is going we continue to.

To feel that way and have moved beyond viability testing to instrumentality testing and we continue to have a roadmap in front of us to that.

We're excited about as we mentioned as I think I mentioned on the call.

All of this has to do because.

Channels that are take more quarters too.

Return.

Involve a little bit more of a judgment around the macro climate and so.

<unk>.

We are reserving the right to pull the reins on those if we feel like some of the assumptions that we use in our.

Analytical modeling.

Are coming onto the out because of deterioration in the macro economy, and we were able to make those changes fairly dynamically.

I think importantly, hey, Eric Tracy importantly, right now even with the elevated cancellation rates the marketing investments that we're continuing to make we believe have positive ROI and payback for the long term.

Okay.

Thank you.

Our next question comes from Cory Carpenter of Jpmorgan.

Your line is open.

Yeah.

Just hoping you could expand a bit just almost all behind the single digit million dollar investment you are making and service offerings. How did you come to that being the right level of scandal.

Thank you <unk>.

In particular.

And secondly could you just talk about what Youre seeing with return to office trends, there and how that's impacting your daytime Sears. Thanks.

Sure.

With regards to that investment.

<unk> for the second half of the year is inclusive of dog training as well as perhaps one or two other items.

That we haven't shared publicly yet.

Now with regards to training.

<unk> mission of rover's to make it possible for everyone to experience the unconditional love of a pet.

We want to remove the barriers.

Okay.

<unk> pads and also the barrier for keeping them.

So we think dog training and helping people have a great relationship with their patent minimize stress is very much in line with our mission.

We think it's the type of service that people would reasonably expect rover to provide and we think it's an interesting incremental.

Revenue and profit pool.

For us to go after.

And so for all those reasons it seemed like a logical.

The first step into this area.

Thank you.

Our next question comes from Andrew Boone of JMP Securities. Your line is open.

Thanks, So much for taking my questions I want to go back to marketing if I go back to set us back deck and kind of the initiation for long term target was kind of 25%. So as we think about your marketing spend and kind of that target level. How do we think about you guys coming back to that or is this more of a structural change would you guys made.

Be able to pull more margin out of that and then secondly, as we think about just higher pricing across the platform and under understood. You guys said that youre not seeing any change in conversion can you talk about how this impacts maybe the transition of the gray market on to Rover do you think there is any slowdown in terms of the incremental buyer that maybe you're still using friends and families. Thanks. So.

Sure.

Hi, Andrew This is Tracy I'll I'll take the first one and maybe Erin will take the second one.

Of the 25% of revenue.

We have laid out in the original stock Duck, Yes, we think we can be more efficient than that over the long term.

But there will be seasonality in the numbers. So we I think maybe it was last quarter said that we think the realistic range of 18% to 25%. So you can see for the first couple of quarters, we were trending more towards the high end of that range, but we noted towards the back half of this year, we will trend down on that percentage.

If you were to go back and look at prior 2019.

That rate was much higher as a percentage of revenue. Additionally, when the cancellation rate is high.

Marketing as a percentage of ultimately realized revenue is also high so that 24% that we had in Q2 was actually artificially high due to the cancellation rate.

So we do think we will do better than that 25% and we do have line of sight to above 30% long term EBITDA margins.

And then erinn.

<unk> was how does this help.

Help us with transitioning the grain market.

I think when you look at the business right now, we're seeing not only gains and the expected lifetime values from our price points, but also units.

So we're seeing that our overnight customers actually booking more units on average.

So longer duration stuff, some combination of duration and frequency and so that isn't indicative of kind of somehow.

More bleeding into the shadow market is actually kind of indicative of the opposite.

In a world in which we have not seen returned to work materialize in a major way in our daytime services.

We remain laggards.

That type of gain in units is incredibly positive on that front end.

There's not a reason to believe there is any increase in disintermediation.

Disintermediation or related topics and then I would just add on the return to office and I think Aaron has noted this before that to the extent that more people are staying home for more of their days, we actually think that that could be a benefit to our overnight services because people will more likely want to.

To escape their house and take more frequent weekend trips or overnight trips.

Great. Thank you.

Thank you.

Our next question comes from Lauren Shack.

Morgan Stanley Your line is open.

Maybe just two modeling questions.

Cancellation rates assumed at the high and low ends of the new guidance range for the full year and then second how should we think about ABB growths in the back half of the year.

Hey, Lauren with regards to cancellation rates, we have continued to see them elevated here and into July and so think about them for the second half of the year in both scenarios is continuing to remain elevated with regards to abv's.

Way to think about that is from where we are today adjusted for seasonality.

You go back to 2019, you can look at the seasonality changes from Q2 to Q3 and in Q3 to Q4, if we utilize those seasonality changes and apply them to what we had in Q2.

That would be in line with what we.

We're thinking for the second half of the year and I would say what elevated cancellation rate means if we were at 14% for the full quarter, but we've said the cancellation rate trended up through the back half and three in July . So we're currently trending in that mid teens rate and Thats. What we are assuming is going to happen going forward line.

And put that perspective, the historical rates closer to 9% to 10% correct.

Lauren good to hear your voice as well just for a little bit more clarity on <unk>.

Do expect seasonal gains in <unk>.

We typically see longer duration stays.

Given and in Christmas.

So that typically increases a little bit, but that being said the rate of unit price growth has been slowing down more recently.

So we don't see a reason for that to go backwards, but we wouldn't necessarily expect the ongoing acceleration of unit price.

Understood.

Thank you I'm showing no further questions at this time I turn the call back over to Aaron easterly for any closing remarks.

Well. Thank you all for attending our Q2 earnings call.

Wanted to spend a minute and thank Tracy for her service trade.

Tracy.

<unk> been wonderful to have you here at Rover.

No when you joined Rover.

You had planned on retiring prior to join US and when you came on board you thought that that retirement would probably be something like 2020.

When I look at the 130% growth that we achieved our first year as a public company.

Switching to producing cash flow the market share gains I am incredibly happy that you decided to stay at those extra couple of years.

Thank you for that and thank you for being a leader during the last couple of years deeply.

Deeply appreciative for everyone on the call thanks for joining us today.

Continue to be excited about our mission and the opportunities we see in front of us and look forward to updating you next quarter.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect in front of us and look forward to update.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

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Okay.

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Okay.

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Yeah.

[music].

Thank you for standing by and welcome to the second quarter 2022 Rover earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

To ask a question at that time, Please press star one wall.

As a reminder, today's conference call is being recorded.

Now onto the cops surgery House, Mr. Walter Roddy, Vice President Investor Relations and capital markets. Please go ahead.

Good afternoon. Thank you for joining us to discuss <unk> second quarter 2022 earnings results in this call we will be discussing the results announced in our press release issued today after the market close which is available on our Investor relations website at investors that world where dot com.

As a reminder, this call is being webcast live on our Investor Relations website and is being recorded and will be available for replay from our Investor Relations website. Shortly after this call.

With me on the call this afternoon, and easterly Chief Executive Officer, and co founder Brent Turner, President and Chief Operating Officer, Tracy Knox, Chief Financial Officer, and Charlie Records VP of finance.

Before we begin I'd like to remind everyone that management will make certain forward looking statements within the safe Harbor provisions of the Securities Litigation Reform Act of 1095.

On this call identified by the words expect believe will May assume continue plan ongoing and similar expressions.

Forward looking statements are based on current expectations estimates forecasts and projections and beliefs and assumptions of management and relate to our future financial performance such as our third quarter 2022, and full year 2022 financial guidance trends for our GAAP and non-GAAP marketing expense as a percentage of revenue.

Marketing investments and initiatives.

Covid and macroeconomic impacts.

Investment and expansion opportunities market share other future events.

The industry and market conditions and forward looking statements about rover, its platform and its domestic and international market opportunity.

These forward looking statements are subject to known and unknown risks uncertainties and assumptions that could cause actual or.

Results or performance to differ materially.

Those expressed or implied in the forward looking statements.

We strongly encourage you to review that information that wherever our files with the SEC regarding specific risks and uncertainties. In particular those that are described in the risk factors section of <unk> first quarter 2022 10-Q file.

With the SEC on May 12, 2022.

Those that will be disclosed in our second quarter 2022 Form 10-Q.

These forward looking statements speak only as of today.

<unk> undertakes no obligation to update these statements to reflect subsequent events or circumstances, except as required by law.

You should not place undue reliance on our forward looking statements as they are not guarantees of future performance.

Finally during the course of today's call, we will discuss audited and unaudited GAAP unaudited non-GAAP financial measures.

We provide a reconciliation of the non-GAAP measures.

Most comparable GAAP measure and the non-GAAP reconciliation supplement which is posted under used events presentations.

On the Investor Relations section of our website.

The non-GAAP financial measures provided should not be considered as a substitute for or superior to GAAP financial measures.

Unless otherwise noted we will compare all Q2 2022 metrics to Q2 2021 metrics in the call.

Let's get started I'll turn the call over to Eric easterly co founder and CEO Eric.

Thank you Walter and thank you everyone for joining us today.

I will begin by discussing our high level second quarter 2022 earnings results give a few other quarters highlights and then provide some commentary on what we're seeing in the market right now.

At that point I will turn it over to Brent to provide you with more details on our bookings and investments.

Tracy will then conclude by walking through the financials and our detailed guidance before we take questions.

Overall Rover had another solid quarter, improving both revenue and adjusted EBITDA.

Despite the impact from Covid variance and other potential macro headwinds the business exceed the high end of our guidance range.

Second quarter revenue of $43 $4 million was up 77% year over year.

Gross booking value grew 59% to $212 $8 million.

Total bookings were up 35% to $1 4 million.

And adjusted EBITDA was corporate $2 million, which was a 68% increase year over year.

Going beyond the recent financial results, we're excited about certain underlying fundamentals.

The value of customers acquired this year is the highest to date, despite the relatively lower mix of data and services revenue per customer less the cost of revenue and support are trending higher than the 2021 cohort, which were also well above our historical norms.

In Q2 repeat bookings reached $1 2 million up 40% year over year.

Our 10 years of data collection.

Rights and technology investments are helping identify and reward great interactions on the platform.

And this is showing through in our customer LTV.

Second the strength of our value proposition relative to competitors continue for sure.

In addition to posting strong top and bottom line numbers.

We believe that we are continuing to gain noticeable share in the largest markets for.

For example, according to third party use data.

<unk> had more than 13 times the sales of pet services versus the next largest similar player for the 12 months ending June 30.

Up from just over <unk> for the prior 12 month period.

Third our international business has continued its aggressive growth trajectory with GBP, increasing to over three and half times Q2 2021 levels.

He has driven the mix of GBP from non U S markets grew 3% in Q2 of last year to 8% this quarter.

This growth is due to rapid expansion of their customer acquisition with Canada, and the U K being the largest contributors.

One particular bright spot is our penetration into European Caf households.

Over the last year, we've made a series of investments designed to bring more European cat parents onto our platform.

We are seeing that payout.

Only <unk> in Europe with nine times the prior year period.

More broadly, we see opportunities to invest incrementally in market trends in Spain.

Our international business Leverages much of the technical and data science investments, we have made to support the U S business.

And as such we expect it to not only be a cost effective driver of long term enterprise value.

Also compete effectively versus smaller players that have been unable to invest comparably.

Finally, we saw marked progress in laying the groundwork to expand beyond our current services.

Rover has a unique position in the ecosystem, which we believe creates opportunities for us to solve a greater array of pain points for modern pet parents.

For example, we recently acquired a small early stage doctoring platform.

Overall, we expect to invest low single digit millions of dollars and the remainder of the calendar year the prototype fantastic extension to our offer.

Plan to share more on this trend in the coming quarters.

While we delivered a strong second quarter and continued to gain market share. We're also seeing some signs of caution in the back half of the year.

What we have observed as the quarter unfolded and continuing into July .

Positions us towards the lower end of our previously communicated full year revenue guidance during the second quarter and continue through July cancellation rates have accelerated after initially dropping materially in February .

In July cancellation rates were roughly 50% higher than the historical norms and are approaching the levels. We saw in July and August of last year during the Delta way in January of this year during the Omicron Wei <unk>.

Additionally, we are seeing some evidence of a slowdown in new customer category demand.

The Google query volume for some keywords is decreasing year over year compared to the outsized gains of 2021.

There is still significantly above the 2019 levels.

Similarly, we've noticed a slowdown in the year over year growth rates or U S air passengers.

Both of these dynamics are consistent with trends in our marketplace.

Out of our desire to balance growth and profitability, we significantly slowed our hiring starting in Q2 and are adjusting our marketing outlets.

In conclusion, we just reached the anniversary of entering the public markets, it's worth reflecting on the last 12 months.

In that time, we increased revenue approximately 130% over the prior 12 months.

Flip from negative to positive adjusted EBITDA gain market share.

While ramping our investments in product support and marketing to drive long term enterprise value.

It has been a good 12 months.

We look forward to growing our position as the world's largest online marketplace for pet care, we are continuing our mission to make it possible for everyone to experience the unconditional love of the pack.

We will look for and execute on opportunities to expand our business judiciously and with the macroeconomic backdrop in mind.

Now I would like to hand over the call to Brent to provide more details on our bookings operational performance and marketing spend.

Thanks, Darrin and greetings to everyone on the call.

I'll first start by adding a bit more color regarding the performance of the business in Q2.

As Aaron mentioned total bookings increased 35% year over year to $1 $4 million. Another all time record quarter for Rover.

With that being said, we observed increasing headwinds, especially towards the end of the quarter and during July as cancellation rates rose and new customer demand softened.

In Q2 worldwide, new customer acquisitions were 260000, an increase of 14% from Q2 2021, when we saw an incredibly strong rebound in pent up organic new customer demand.

Our non U S business also grew its acquisition of new customers nicely.

With the largest absolute numbers coming from Canada, and the U K.

And with similarly impressive growth rates for the rest of Europe .

In Q2, 2022, non-GAAP marketing expense was 24% of revenue up 600 basis points from Q2, 2021, and roughly sequentially flat from Q1 2022.

This percentage was towards the top end of our previously mentioned long term in seasonally adjusted range of 18% to 25%.

The higher Q2 percentage compared to 2021 was driven by an increased cancellation rate.

Your search spin and ongoing testing of marketing channels.

With respect to marketing testing, we upgraded our ROI measurement during the pandemic with a particular focus on return on video social and similar channels.

As we have mentioned previously we plan to increase marketing spending as we evaluated both the efficiency and scalability of these channels.

We are pleased with the results of our testing from Q1 and Q2.

And we like their implications for our ability to drive efficient new customer acquisitions over time.

However, based on our observations in June and expectations through Q3.

We believe that the macro environment inclusive of Covid impact in the second half may not be conducive to scaling these investments at this time.

As a result for the second half in the context of our current revenue expectations.

We expect marketing as a percentage of revenue to trend lower.

While we continue to make progress on our new customer marketing initiatives. We are also pleased with our repeat bookings, which were $1 2 million for Q2, a year over year increase of 40%.

As discussed last quarter, we continue to leverage our CRM channels as a cost efficient way to invite our existing customers back to the platform.

Further we continue to invest in product and customer experience.

Our ongoing work includes improvements the usability of our apps and testing new ways to improve our platform's ability to create great matches between pet parents and care providers.

We are particularly excited about a number of recent improvements in our trust and safety capabilities.

For example, we have introduced notification that encourage walkers and centers can be mindful with breeds susceptible to heat related issues when temperatures Ray.

We believe by continuously improving our product and service pet parents, <unk> will find increasing values in the robo offering.

We are pleased with the results of our investments to date and the strength of our results. This quarter brokerage continued to execute well, attracting new customers and building scale.

I'll now hand, the call over to Tracy to walk through our financial performance.

Thanks Brent.

I'll begin today by providing an overview of our financial results for the second quarter of 2022, followed by guidance.

Unless noted otherwise I'll be comparing our second quarter results to the same period in 2021.

As a reminder, our discussion of expenses will cover non-GAAP amounts exclude stock based compensation expense.

Revenue in the second quarter was $43 $4 million up 77%, while second quarter, <unk> with $212 8 million up 59%.

Our second quarter revenue exceeded our guidance driven by continued increases in average booking value and strengthen our European bookings.

Brent already discussed booking, but I want to give a little more color on ABB.

Second quarter, ABB with $147 up 18% driven by increases in average price per service that by pet care providers on the platform with a skew towards greater growth in the overnight services.

We believe this is due to a continuation of the more significant provider initiated price increases.

In Q2 of 2021 and as a result of our extended stay billing feature which rolled out in Q4 last year.

These price increases can be seen when viewing newer pet parent provider relationships versus those that began more than a year ago with the newer relationships being noticeably higher increases the price per unit.

We believe new relationships or more fully reflecting the providers increase in pricing.

Legacy relationships will lag as providers respect earlier agreed upon pricing with their longer term customers.

This growth in Abb's, along with our solid retention rates has increased expected ltvs.

Moving to expenses cost of revenue in the second quarter was $10 5 million or 24% of revenue compared to $6 3 million or 26% of revenue in the prior year period and 28% in the first quarter of 2022.

Both the year over year and sequential improvement with largely driven by the scaling of revenue and leverage achieved on the portion of costs that are more fixed in nature.

Namely amortization of internally developed software and certain technology platform.

non-GAAP marketing expenses were $10 $7 million in the second quarter or 24% of revenue of 600 basis points from Q2, 2021, and roughly flat sequentially from Q1 2022.

The higher Q2 percentage was driven by higher search spend ongoing testing of marketing channels as well as the accelerating cancellation rate that we saw during the quarter.

Of note our advertising expense was the primary driver up 207% as we implemented our strategy to increase our marketing investments, while our fixed marketing expenses were up 26%.

As Brent described earlier, we plan to keep our marketing spend elevated on an absolute basis for the second half of the year versus 2021, but we do expect it to be a lower percentage of revenue relative to the first half of 2022.

Second quarter, non-GAAP operations, and support expenses were $6 1 million or 14% of revenue flat compared to 14% of revenue in Q2 2021.

We continued to see leverage in non-GAAP product development expenses, which were $5 2 million or 12% of revenue compared to $4 7 million or 19% of revenue in Q2 2021.

Second quarter, non-GAAP general and administrative expenses were $8 8 million or 20% of revenue compared to $5 1 million or 21% of revenue in Q2 2021.

The increase year over year in expense as a result of the investment needed to support our transition into the public markets. While the decline on a percentage basis is due to our scaling of revenues from Q2 2021 in.

In addition, there was a sequential decline from Q1 2022 of $400000, primarily due to a decrease in professional fees.

Adjusted EBITDA was $4 $2 million or a margin of 10%.

From the adjusted EBITDA of $2 5 million in Q2 of last year.

The improvement in adjusted EBITDA resulted from strong revenue paired with ongoing operational expense efficiencies during the quarter.

From a liquidity perspective, we generated strong cash from operations and our total cash cash equivalents and investments of $288 million is up from $282 million from Q1.

In summary, our business delivered strong top and bottom line results during the quarter.

Now turning to guidance.

Both the low and high end of our revenue guidance continues to assume the full year impacts related to the omicron and the recent macroeconomic headwinds inclusive of the elevated cancellation rates and softer new customer demand as Aaron described.

The high end of our guidance differs from the low end by assuming more modest impacts of additional COVID-19 waves and no further incremental deterioration in demand due to macroeconomic trends.

For the third quarter of 2022, we expect revenue of 46% to $48 million.

And adjusted EBITDA of $6 million to $8 million.

For the full year 2022, we are updating our prior guidance and now expect revenue of $160 million to $166 million and adjusted EBITDA of $10 million to $14 million, which at the midpoint would be a 48% increase in revenue over 2021 and approximately flat in <unk>.

Adjusted EBITDA.

The change in the adjusted EBIT guidance is primarily driven by the following.

First our revised revenue guidance, including ongoing elevated cancellation rate.

Of note going forward, a one point improvement in our cancellation rate drives approximately one point of additional adjusted EBITDA margin.

Second a shift in the marketing mix to a higher proportion of paid and within that a higher proportion of higher cost marketing channels.

Finally, the choice to invest single digit millions in the initial steps to expand our service offerings through the coming quarters.

In addition, we are excited for the longer term opportunities that we intend to invest in.

Without the impact of these items adjusted EBITDA margin at the midpoint would be approximately flat year over year and in line with the mid point margin of prior guidance.

Furthermore, without the softening of demand we are now projecting for the second half of this year, our adjusted EBIT margins would be solidly on the path to our longer term margin goal.

Importantly, we are reiterating our commitment to delivering on our longer term margin goal of over 30% for the core business.

Before I open it up for Q&A I wanted to take a final moment to thank.

You all again.

Aaron and the leadership team, our amazing employees and our stockholders for your continued support as I transition to an advisory role as part of my previously announced retirement.

I'm truly grateful for my cognate Rover.

Especially to have been part of the progress made in our last 12 months as a public company, including growing revenue of 130% over the prior 12 months and generating positive adjusted EBITDA.

I continue to be impressed by Charlie as we've executed our transition process and I'm excited to watch him help Rover continue to prosper and grow.

With that I'll turn it to Q&A.

Operator can you open it up for Q&A.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your Touchtone telephone again to ask a question. Please press star one one.

One moment please.

Our first question comes from Ralph <unk> of William Blair. Your line is open.

Hi, good afternoon. Thanks for taking the question two if I can first just in terms of the cancellations that cancellation rates. Just curious if you could give some sense of attribution too.

Slowdown in air travel that you called out I think a lot of that occurred towards the end of Q2 versus just a tougher macro environment and maybe some also some consideration on the increase of pricing.

Being increased by Pip providers, just curious if you have some thoughts of what's perhaps having the most pronounced impact and then I have a follow up.

Hi, Ralph this is Charlie good to hear from you.

With regards to the cancellation rate.

Did increase during the quarter so as the quarter progressed, we saw an uptick.

So we do think that it was.

Marked increase in the number of people that said that they tested positive or sick themselves.

During the period.

So while the overall.

Okay.

Not rising dramatically in the U S. We do still see a significant portion for that with regards to the cedar pricing. We've looked at this in quite a bit of detail. The system, it's possible that pricing in the broader economy is affecting people's decisions to travel so as energy prices go up as food prices go up is.

People may feel some economic angst that being said when we look at it in our marketplace. We don't see any impact from provider prices on the decision to continue to book a state.

There is.

Little correlation if any with regards to higher prices and people preceding to book.

Okay.

Actually really helpful color.

Just maybe kind of switching gears to international it seems like some.

Good growth there and you gave some good metrics. Just curious is that just years of hard work all coming together I think you've talked about maybe some increased marketing maybe just a little color in terms of what's driving that growth.

Sure Hi, Ralph this is Brad thanks for the question.

One thing that we.

Believe as a driver of our growth is that.

To your point about a bunch of hard work, we did get out into market with our blog and with our PR investments.

Ahead of the rebound to try to to try to increase awareness, particularly in Europe , and we think we've done a good job there we think that where we are.

Awareness unaided around 11% and most nations Ada.

Aided bouncing between 20 and 30 as well ahead of where the U S business was at a similar level of scale.

That helps explain some of the maturation of the metrics and some of the growth over there.

Right now.

Okay, great. Thank you.

Okay.

Thank you. Our next question comes from Maria <unk> of Canaccord. Your line is open.

Just a follow up on your full year guidance. So in addition to heightened cancellations is there anything else you can maybe sherri in terms of new users to the platform user retention.

Spend per user or any specific regions or markets to highlight there.

From.

From a cohort or LTV perspective.

We are seeing much higher abb's this quarter than we did last year and so based on that and stronger retention. These look like our best customer cohorts, yet and we're seeing where we're projecting the highest ltvs yet.

Hi, Maria this is Aaron it's good to hear your voice does it a little bit of additional color commentary on the new customer side.

What we are looking at the TSA data is actually pretty interesting for US there is normally a seasonal gain between June and July in terms of U S air passengers.

This year actually is had the smallest gain from June to July or any of the last four including 2020.

In the U S Air travel data.

Really when you compare 2022 to 2019.

<unk> never caught up to 2019 are part of the explanation for that.

Maybe that there is less business travel rebound, but when you actually look at those numbers the GAAP versus 2019 has actually been growing since April .

Versus closing.

So we think that there is a little bit of a travel dynamic that it really only became noticeable towards.

The end of the quarter.

And we noted also.

We're seeing a similar trend.

Google with regards to the amount of people that are looking for the services that we would expect.

Seasonally based on what we saw in May and June .

Okay.

So I haven't got it Mario.

As elevated cancellation rates continue through the end of the year.

And ongoing softness in demand those are the two got it. Thanks.

Got it.

Very helpful. And then maybe just on your continued strength in Europe is there anything you can add in terms of sort of maybe broader macro dynamics, there and then sort of more broadly.

Can you maybe just talk about the competitive dynamics in some of those key markets and you did say that your brand awareness is getting stronger there, but sort of what's the level of broader category awareness across some of those key markets.

Hi, Maria it's spread it's good to hear your voice.

Yes.

In terms of the competitive dynamic there is a set of.

A small.

And frankly similar side similarly sized competitors.

Europe , which makes it a different competitive dynamic than the United States.

Yes.

And so we and we do think that one of the reasons, we've been able to build brand awareness for ourselves in Europe , just because they are actually as a category.

A bit player.

Players each of whom is driving awareness of themselves.

So the.

The players.

Players each of whom is driving awareness of themselves and so.

So the idea that you would.

Go online to find pet care.

Is actually considered things so to speak and Europe , whereas when the U S business was at a similar level of scale that was not true.

I don't know that we are.

As clear.

On a level of scale that was not true.

Sure.

I don't know that we are.

As clear.

On macro environments that might be tailwind for us aside from the fact that the.

Geographies they are opening up.

But I can say that from the standpoint of.

Sure.

Some of the things that we've tried to do to build awareness in the United States in some cases, they have been more successful.

In Europe and in fact, one of our top blog posts in the globe.

Over the past I think nine months has been a dog named Spain, which has been actually quite viral.

And then one other thing I'll add to that piece.

Pieces that have.

With regards to the competitive dynamics it actually varies by country. There are some pan European players there are some country specific players.

Yeah.

Got it that's very helpful. Thank you very much.

Thank you. Our next question comes from Eric Sheridan of Goldman Sachs. Your line is open.

Okay.

Yes.

Ben side, just wanted to better understand what you meant by upgraded all ROI metrics with rich particular channels evidently that youre looking at maybe at a different way than you have in the past in this.

The second part of that question would be are there any channels you are finding greater a rising level of efficacy with from an ROI standpoint that would maybe cause you to re.

Readdress some of those ROI metrics internally and then secondarily you talked about obviously dialing back the marketing investments in the back part of the year could you just give us a little bit better sense of your lead time of how you think about dialing up or dialing down marketing investments based on what you see in terms of end market dynamics. Thanks, so much.

Sure. Thanks, Eric all of these questions.

So.

Over the years, we have like most companies that are attempting to build a category.

<unk> struggled.

Struggled with.

A set of approaches for trying to.

Quantify if the return of channels that are a little bit more of a funnel.

We have worked with click stream, we've worked with panel data.

One of the pluses that we thought we could make once we get to a certain level of scale is simply go to a methodology, that's a little bit more geographic test over control. The spins that you need to do on a test basis are a little higher so they were not practical when we were more subscale, but today represent.

Small parts of our marketing budget and as what we've moved to now it's not a straightforward thing to do is there's quite a bit of instrumentation and refinement in terms of our calculated approach to make these work, but this is the way we.

<unk> decided to move, particularly for our social due to linear TV streaming TV channels like that.

And it's been unfortunate.

Pleased with our analytics team because.

In terms of the lead time to dial back.

The the channel to take the longest are streaming of linear although I have to say.

We were able to turn those around.

<unk> digit weeks.

And Youtube obviously is.

Is instantaneous as a matter of bidding not only as a matter of AWN on but we can we can change the way we bid.

Of the channels that we have been working with our recently I think we've said in previous calls that we are pretty happy with how Youtube is going we continue to.

To feel that way and have moved beyond viability testing to instrumentality testing and we continue to have a roadmap in front of us to that.

We're excited about as we mentioned as I think I mentioned on the call.

All of this has to do because.

Channels that are take more quarters too.

Return.

Involve a little bit more of a judgment around the macro climate and so.

<unk>.

We are reserving the right to pull the reins of those if we feel like some of the assumptions that we use.

Analytical modeling.

Are coming into the out because of deterioration to the macro economy, and we were able to make those changes fairly dynamically.

I think importantly, I guess Tracey importantly, right now even with the elevated cancellation rates the marketing investments that we're continuing to make we believe have positive ROI and payback for the long term.

Okay.

Thank you.

Our next question comes from Cory Carpenter of Jpmorgan.

Your line is open.

Yeah.

Hoping you could expand a bit just on the thought behind the single digit million dollar investment you are making and service offerings. How did you come to that being the right level of scandal.

I think you start changing.

In particular.

Secondly, could you just talk about what youre seeing with return to office trends, there and how that's impacting your answers. Thanks.

Sure.

With regard to that investment.

<unk> for the second half of the year is inclusive of dog training as well as perhaps one or two other items.

That we haven't shared publicly yet.

Now with regards to training our mission of rover's to make it possible for everyone to experience the unconditional love a pet.

We want to remove the barriers.

For people to get pass and also the barriers for keeping them.

So we think dog training and helping people have.

Great relationship with their patent minimize stress is very much in line with our mission.

We think it's the type of service that people would reasonably expect rover to provide and we think it's an interesting incremental.

Revenue and profit pool for us to go after.

And so for all those reasons it seemed like a logical.

First step into this area.

Thank you.

Our next question comes from Andrew Boone of JMP Securities. Your line is open.

Yeah.

Thanks, So much for taking my questions I want to go back to marketing.

I go back to <unk> and kind of the initiation. The long term target was kind of 25%. So as we think about your marketing spend and kind of that target level. How do we think about you guys coming back to that or is this more of a structural change where you guys may be able to pull more margin out of that and then secondly, as we think about just higher pricing across the.

Form an under understood you guys said that youre not seeing any change in conversion can you talk about how this impacts maybe the transition of the gray market on to Rover do you think there is any slowdown in terms of the incremental buyer that may be still using friends and families. Thanks. So much.

Hi, Andrew This is Tracy I'll I'll take the first one and maybe Erin will take the second one.

In terms of the 25% of revenue as we have laid out in the original stock Duck, Yes, we think we can be more efficient than that over the long term.

But there will be seasonality.

The numbers. So we I think maybe it was last quarter said that we think the realistic range of 18% to 25%. So you can see for the first couple of quarters, we were trending more towards the high end of that range, but we noted towards the back half of this year, we will trend down.

That percentage if you were to go back and look at prior to 2019.

Sure.

That rate was much higher as a percentage of revenue. Additionally, when the cancellation rate is high.

Marketing as a percentage of ultimately realized revenue is also high so that 24% that we had in Q2 was actually artificially high due to the cancellation rate.

So we do think we will do better than that 25% and we do have line of sight to above 30% long term EBITDA margins.

And then Aaron.

That was how it does.

Help us with transitioning the grain market yes.

Yes, I think when you look at the business right now, we're seeing not only gains and the expected lifetime values from <unk>.

Price points, but also units.

So we're seeing that our overnight customers actually booking more units on average.

So longer duration stuff, some combination of duration and frequency.

And so that isn't indicative of kind of somehow.

More bleeding into the shadow market actually kind of indicative of the opposite.

In a world in which we have not seen return to work materialize in a major way in our daytime services.

Main laggards.

<unk> seen that type of gain in units is incredibly positive.

That front end.

There's not a.

A reason to believe there is any increase in.

To escape their house and take more frequent weekend trips or overnight trips.

Okay.

Great. Thank you.

Thank you.

Our next question comes from Laurence <unk> of Morgan Stanley . Your line is open.

Maybe just two modeling questions.

Cancellation rates assumed at the high and low ends of the new guidance range for the full year and then second how should we think about ABB growth in the back half of the year.

With regards to cancellation rates, we have continued to see elevated here and into July and so think about them for the second half of the year in both scenarios is continuing to remain elevated with regards to <unk>.

Way to think about that is from where we are today adjusted for seasonality. So if you go back to 2019, you can look at the seasonality changes from Q2 to Q3 and in Q3 to Q4, if we utilize those seasonality changes and apply them to what we had in Q2.

That would be in line with what we.

We're thinking for the second half of the year and I would say what elevated cancellation rate means we were at 14% for the full quarter, but we have said the cancellation rate trended up through the back half and through July . So we're currently trending in that mid teens rate and Thats. What we are assuming is going to happen going forward.

And put that perspective, the historical rates closer to 9% to 10% correct.

And Lauren good to hear your voice as well just for a little bit more clarity on the abv's.

We do expect seasonal gains in Abv's.

We typically see longer duration stays Thanksgiving and Christmas.

So that typically increases a little bit, but that being said the rate of unit price growth has been slowing down more recently.

So we don't see a reason for that to go backwards, but we wouldn't necessarily expect the ongoing acceleration of unit price.

Understood.

Thank you.

Showing no further questions at this time I will turn the call back over to Aaron easterly for any closing remarks.

Well. Thank you all for attending our Q2 earnings call I wanted to spend a minute and thank Tracy for her service.

Tracy it's been wonderful to have you here at Rover I know when you joined Rover.

You had planned on retiring prior to joining us and when you came on board you thought that that retirement would probably be something like 2020.

When I look at the 130% growth we achieved our first year as a public company the switching to producing cash flow the market share gains I am incredibly happy that you decided to stay at those extra couple of years.

Thank you for that and thank you for being a leader during the last couple of years.

Deeply appreciative for everyone on the call thanks for joining us today.

We continue to be excited about our mission all participating you may now disconnect have a great day and look forward to updating you next quarter.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.

Q2 2022 Rover Group Inc Earnings Call

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