Q2 2022 Vacasa Inc Earnings Call
Past few months before I turn the call over to Jamie to review, our financial results and guidance.
We extended our position as north America's leading vacation rental management platform in the second quarter by welcoming thousands of new homeowners to the Gaza.
We believe that our technology focus creates a truly differentiated value proposition for homeowners, making us the vacation rental manager of choice in the markets we operate.
We aim to generate homeowners more rental income than peers through our advanced yield optimization, which combines broad lifting distribution with our proprietary dynamic pricing engine.
The listing for every home we manage is distributed across Airbnb booking dot com and verbal plus more than 100 other channels to maximize visibility and in turn guest demand.
We also leverage internally developed dynamic pricing algorithms that analyze both internal and external datasets in real time to determine a customized price for each individual home for a given night.
We made substantial progress on home additions during the second quarter and remain on track to increase our homes under management by about 30% during 2022.
Our individual approach, which is a direct sales model, where predominantly local sales representatives sign up individual homeowners continues to account for the majority of our home additions.
The economics of the individual approach remains strong with a lifetime value to customer acquisition cost remaining above our target range of four times to five times on a trailing 12 month basis.
Similar to prior quarters, our CAC has remained stable, which combined with stronger lifetime value lands us above our target range.
We continue to add sales executives throughout the quarter, reaching the targeted sales force size for 2022 that we set out at the beginning of the year.
In the second half of 2022, we intend to maintain its current size back filling with additional hires as needed.
On the portfolio approach, we were active in the second quarter, bringing on 16 portfolios.
The portfolio program by its nature tends to fluctuate on a quarter to quarter basis.
In the second quarter, while maintaining our disciplined approach to evaluating portfolios, we came across a number of opportunities that fit squarely into our framework.
We look for portfolios that either open new markets.
At scale to thin markets to build density.
Or unlock differentiated high quality inventory.
For example, Theres a market in the Florida Panhandle with more than 1000 vacation rental homes.
The two leading vacation rental property management companies in the market are both locally owned and each have had a presence there for about 50 years.
Being a relatively smaller market with a couple of large tenured operators is more difficult from a cost to establish a meaningful presence quickly through the individual approach.
When one of the two leading portfolios in this Florida market became available as the owners approach retirement age.
We were able to add that 250, plus unit portfolio and immediately established a market leading position.
We also extended job offers to each and every one of their 50 employees that have deep local knowledge and that the homeowners have come to know and trust.
From a growth perspective. This portfolio addition, also unlocks a new market for the individual sales effort.
Which will be led by our local employee that we retained from the prior company.
And supported by the broader bokassa platform.
The situation I, just described encapsulates the strategic nature of our portfolio program.
We deploy it in a disciplined fashion with our targets and valuation framework informed by our prior experience executing this playbook more than 200 times.
The portfolio program is a very powerful strategy that allows us to enter new markets profitably and importantly, unlocks substantial opportunity for our individual approach.
Finally, I want to spend some time covering recent updates to our technology platform.
<unk> of our business, which helps improve the vacation rental experience for guests and homeowners.
Drives efficiencies in our local market operations and enables us to scale.
In addition to the internally developed purpose built products, we've introduced such as our pricing algorithms. The homeowner app and the clean inspection tool just to name a few we've.
We've also implemented a number of enterprise grade systems over the past six months.
These systems complement and integrate with our internally built tools and are used for more general functions that many growing businesses require like telephony and sales as opposed to our proprietary tools that are specific to our industry and business.
Importantly, these tools can support immense scale and our long term ambitions of managing hundreds of thousands of vacation homes and facilitating tens of millions of nights sold on an annual basis.
The individual approach of adding new homes to our platform is crucial to our long term success in.
In addition to increasing the number of sales representatives over the past year. We also launched a new customer relationship management tool in the second quarter.
The new CRM system allows us to collect more data at every point during the sales process from how are lead enters our funnel to signing the contract and eventually will help streamline home onboarding.
Our sales leadership team can now analyze this newly collected data to identify what is working and different pain points.
From there they can turn those insights into actions to further refine training and sales tactics ultimately, making our sales representatives more effective.
While we don't expect an immediate step function change in productivity or sales leaders now have greater insight into the sales force, enabling those leaders to manage the team effectively as it scales in the years ahead.
We've also implemented a new communication platform that improves our ability to interact with guests and owners, while streamlining our operations.
We've customize the platform to tie directly in with our vacation rental management system, which houses all of the information about reservations and owners.
This enables our owner and guest experience teams to work in a single environment with the right information displayed at the right time.
It also allows us to fund them multiple communications sources, such as the phone call SMS message or a message received through a channel partner to one location.
With the new system in place, we've been able to offer guests and homeowners or ways to communicate with our support teams and resolve their questions more quickly which has resulted in operational efficiencies.
Our deep technology experience and overall scale allow us to invest in these leading technologies, which in turn supports our ability to provide superior customer service and continue to efficiently add homes to our platform.
In closing our business is well positioned from an industry business model and capital perspective, I'm confident the team can continue to execute across all facets of our business positioning us well for continued growth against the market opportunity of more than 5 million vacation homes in the United States.
Now I will turn the call over to Jamie to review, our second quarter results and guidance in detail Jamie.
Thanks, Matt.
And we review our financial results unless noted otherwise I will be comparing our second quarter results to the second quarter of 2021, and I'll be referencing the operating expense line, excluding the impact of stock based compensation and business combination costs, which you can find outlined in our press release and shareholder letter.
Also recall that we completed our strategic acquisition of turnkey vacation rentals on April one 2021, which does affect the year over year growth rates of our key business metrics and revenue relative to the first corner.
Gross booking value, which is the combination of night sold and gross booking value per night.
$696 million in the second quarter up 32% year over year Nice solid reached $1 6 million in the second quarter up 17% year over year with the increase primarily driven by the addition of new properties to the platform.
Gross booking value per night reached $411 in the second quarter.
18% year over year.
Remember there is a strong relationship between these two metrics and it's difficult to look at either in isolation.
Brian Carey pricing algorithms are constantly evaluating the trade off between price and occupancy to optimize the mix of nice growth in gross booking value per night zone with the goal of maximizing homeowner income.
Revenue, which consist primarily of our commission on the rents we generate for homeowners and the fees, we collect from gas with $310 million in the second quarter.
31% year over year, and above our guidance range of $280 million to $290 million.
And then my strong estimate.
Now turning to our expenses.
Cost of revenue was 49% of revenue in the second quarter with slight year over year operating leverage due to the growth of gross booking value.
Operations and support expenses grew 25% year over year and decreased as a percentage of revenues sequentially as we leverage the fixed portion of operations and support expense.
Expenses in our seasonally stronger second quarter.
Technology and development expenses were up 38% year over year, and we've grown our engineering and product team and software infrastructure.
On a sequential basis technology and development expenses were nearly unchanged.
Sales and marketing expenses were up 58% year over year with the increase due to our significantly larger sales force compared to a year ago and in turn a greater homeowner focused advertising spend to drive more leads for our lives ourselves of course.
Selling and marketing expenses also higher due to the higher fees paid to distribution partners driven by the growth of gross booking value.
General and administrative expenses were up 61% year over year, largely due to hiring to support the increasing scale of our business.
We also had higher costs in the second quarter relative to last year now that we are a publicly traded.
On a sequential basis general and administrative expenses increased by $6 million.
And the bulk of that due to nonrecurring items, including higher professional services.
Adjusted EBITDA was negative $2 million for the second quarter ahead of our guidance range of negative $20 million to negative $15 million.
A majority of the upside relative to guidance was due to stronger than expected gross booking values.
In the second quarter, we on boarded 16 portfolio for a total consideration of $74 million.
In aggregate the portfolio as we on boarded in the second quarter tended to be higher performing on a revenue basis, resulting in a higher purchase price per unit, but the average multiple paid was in line with our valuation target.
Not all units are created equally and our focus remains on evaluating the resulting revenue and profitability that our portfolio contributes relative to its cost.
Given we found substantial opportunities to deploy our planned 2020 to spend through the first two quarters of the year I would expect less spend on new portfolios in the second half of 2022 relative to the first half.
Our operating cash flow in a given quarter has some variability due to the seasonal nature of our business. We generated positive operating cash flow on a last 12 month basis for six consecutive quarters.
Rob months, ending June 32022, our operating cash flow was $110 million.
We had capital expenditures of $18 million.
We believe that we remain well capitalized and fully funded with $759 million of cash cash equivalents and restricted cash. We also have $102 million of borrowing capacity under our $105 million revolver with a $3 million difference due to outstanding letters of credit.
We believe that our consistent ability to generate sustained positive operating cash flow minimal capital expenditure requirements and current cash balances allow us to execute on the growth opportunities ahead of us now.
Now turning to guidance.
We expect third quarter revenue to be in the range of 385 million to $395 million and are raising our full year revenue guidance to a range of $1 165 billion to.
118 5 billion.
July has historically been our seasonally strongest month of the year and has accounted for 40% 50% of third quarter gross booking value in revenue.
Also have a high percentage of our expected August bookings confirmed at this point, which is our second strongest month of the year.
With July complete and high visibility into August we are confident in our third quarter guidance and while we have less visibility into the fourth quarter. Given it's only August we're currently pacing well against our expectations.
Our fiscal year guidance assumes that for the second half of 2022, the combination of gross booking value per night sold and night sold takes a slight step back from the record levels reached in 2021.
<unk> meaningfully above pre pandemic levels.
We expect third quarter adjusted EBITDA to be in the range of 55 million to $60 million and are raising our full year adjusted EBITDA guidance to a range of negative $7 million to breakeven.
We understand the importance of reaching adjusted EBITDA profitability, especially given the broader macroeconomic environment and increased investor focus on balancing growth and profitability.
Rather than reinvesting our second quarter, adjusted EBITDA outperformance to accelerate various discretionary investments as we've done in the past, where instead of letting that flow through and are raising our adjusted EBITDA guidance for the full year.
The midpoint of our full year 2022, adjusted EBITDA guidance is now negative $4 million, which is nearly $40 million higher than the negative $42 million, we outlined in our initial projections back in July 2021, we are also reiterating our guidance of reaching adjusted EBITDA profitability for full year 2023.
We're incredibly proud of the progress the entire team has made over the past year and with that Matt and I will take your questions. Operator, Please open up the lines.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from Doug Anmuth with Jpmorgan. Your line is open.
Great. Thanks for taking my questions.
Matt I know you said the.
Macro said no discernible impact on the business in <unk>, but just was hoping you could talk a little bit more about how you think property owners.
Would behave in a tougher macro environment and are you seeing anything to suggest that there.
More open to.
To renting out the property or they are looking to fill more room nights or anything like that thanks.
Yeah.
Good question, it's definitely logical to think we'd see a benefit in terms of new homes coming onto the platform and <unk>.
Owners that are already on the platform opening up more availability as you mentioned.
Definitely always different motivations for homeowners to rent out their homes in a softer environment is just another reason.
To date, we havent seen like big meaningful benefit show up yet in the individual approach.
We agree that it could be a tailwind.
Okay and anything.
It's not a big percentage of the business, but.
Any shifts around just kind of longer term.
And the type of space again, I know, it's not a big piece.
Yes, no no major change in terms of the percentage as we talked about that ton is pretty small percentage today, we continue to invest in the things we talked about.
Last quarterly call to set up the business to achieve avail.
Available.
A larger percentage of availability for extended stays theres a lot of complexity associated with that which we walked through we're making good progress on that nothing major to update you on.
Okay. Thank you.
Thanks.
Your next question comes from the line of Bernie Mcternan with Needham <unk> Company. Your line is open.
Thank you for taking the questions.
It might be helpful. If you can just talk to your visibility into portfolio additions maybe go through the final process how leads come into the process. The timeline in the process of converting them into two actual supply.
Sure well, we had a great quarter in terms of adding 16 portfolio some great ones too that fit.
Squarely into our overall strategy for that playbook.
So we actually have a team a full team of dedicated.
Corporate development business development managers, but.
But we run it very much like a sales process. If you will but it's more relationship based so there is a.
Pipeline of.
Different portfolios that would fit our strategic rationale and we build relationships with those owners it is a bit lumpy because the individual owners or operators.
At different stages of what their interest is in terms of selling the businesses. So it can be lumpy, but the main thing is we've done it over 200 times, we run a consistent approach we build those relationships over time, such that when folks are interested.
We are a logical choice, we make more money for their homeowners.
We also provide employment opportunities for their team. So we are a great fit for somebody that is looking for an exit from their business for the example that we gave the folks who are retiring.
That's it that's the general approach we run it very much like our sales pipeline, if you will but it's much more relationship and long term.
Focused than maybe in the individual appropriately.
Understood and a follow up on the technology to mentioned CRM and messaging and other tech are these are these pieces of technology that you guys are building yourself are you likely licensing them from a third party and any color on why.
Yes, so there the CRM system Salesforce.
Communications platform as Twilio.
And both of those are.
Enterprise grade very respected best in class solutions.
That many companies have chosen to use well actually I think many larger companies have.
<unk> chosen to use the nice thing about our ability our scale and capital resources that we can invest in these enterprise grade systems that do functionality that many companies need versus the items that we build ourselves at a very specific and proprietary to our vertical.
In vacation rentals and building the platform, it's really the integration of those into our proprietary systems at the sum of the parts really creates the best overall platform in the industry.
And we are able to invest millions of dollars in these solutions, but we don't have to build everything we can buy.
Where it makes sense and buying best of class solutions, like Salesforce, and Twilio and tying that in to our proprietary tools and technologies and our vacation rental management system, that's where the platform becomes incredible and also can scale to our ambitions hundreds of thousands of homes tension.
Tonight sold a year.
It makes all sense.
Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the question maybe.
The industry is there anything to call out in terms of waste some of your listings are accurate or across different transaction platforms Airbnb to otas.
Your opinion on how youre thinking about broader marketing channels or they're playing ROI from listings. Thanks, so much.
No I mean, each of the channels has their own different demographic relative to their user bases.
And so we will make sure that we tailor the listings the content the copy pictures et cetera to do the best we can to optimize conversion for our homeowners, we actually actively manage that down two basis points.
Conversion improvement by channel and have the ability through direct API to do all of that hard work.
I don't think I would call out anything discernible between them.
That just publicly to call out, but what I would say is that the overall opportunity for us to continue to refine and to get the most conversion is still there we're not anywhere close to done in terms of the ability for us to do that optimization of listings and that's what we do on a day.
Basis.
Was there a second part that I missed.
Just curious in terms of those optimization efforts, what do you see as the most.
Compelling Akshay do you want to lead into the sort of increase optimization.
Well, it's the things that I mentioned and it's interesting because if there's not a individual large gap that we're trying to fill right now our performance is great across each of the channels. So it's really grinding out those basis points improvement on a day in and day out basis.
It's where we get the opportunity.
Your next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.
Yeah.
Hi, guys. This is owen on for Mike.
<unk>.
Roughly how many sales reps do you have today and secondly, how is their productivity ramping.
As they mature in terms of your prior expectation.
Yes.
Yes.
The absolute we added we had a great quarter.
For for adding sales reps, because we reached our number our target and our planned target number for the year in the second quarter, which we had planned to do we had planned to to Frontload, our additions for the year and get to our target number by the end of June and we were successful in doing that we added a net.
Net double digit sales reps in the quarter so deep.
Really a focus for us in the back half of the year is maintaining the size of that of course, we will continue to be adding sales reps, but between back filling performance management et cetera on the net basis, we're roughly stay in this size as far as the.
The focus for us is really about getting that productivity improvement.
Because that coupled with the size of the sales force is really what gives you. The overall compound compounded lift to the individual approach and Thats, where the new CRM system that we just implemented and that will have a lot of enhancements opportunities for us going forward comes in and then just the tenure.
<unk> added a lot of salespeople over the last year and newer sales reps are not as productive as tenured sales reps. So theres, just a natural productivity enhancement that youll get as people mature in the role.
Yes.
Got it. Thanks, and then are there any specific locations or regions that you'd like to call out that are outperforming.
No we don't provide really regional data, it's more obviously on a national footprint or.
International really at a company level perspective.
Obviously, we have all the data down to the to the ZIP code and the city block, but theres nothing that I would call out on a on a regional basis.
Okay. Thank you.
You're welcome.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Your next question comes from Jed Kelly with Oppenheimer. Your line is open.
Okay.
Quick question.
Two if I may.
Just going back to your sales your sales force.
I know you know a lot of time.
What experience building out sales force teams just.
Have you figured out like what happens when you sort of one property to another large manager.
Sort of what are you what some of the strategies around improving your sales force productivity to kind of gain more share.
And then my second question is I appreciate you guys reiterated.
In your guidance.
EBIT positive next year, but can you talk about.
EBIT positive if we do see us slow down and potentially 'twenty three there is a compression around revpar. Thanks sure.
Sure well why don't I take the first one and I'll, let Jamie handle the second one.
There is a number of things that are pretty basic sales team development that our team is executing against incredibly well in terms of training.
Had to onboard a number of quite a few new sales reps. So it's starting with just getting those reps comfortable with <unk>.
Communicating our value proposition to prospective homeowners and then you get to the refinement of the shales.
Process and that is where this data from Salesforce is really going to come in handy to help our sales leadership team develop even more precise roleplaying et cetera objection handling et cetera.
Specific tactics that we're taking we're not necessarily interested in sharing sharing those broadly.
Because we're still in a competitive industry.
Im incredibly proud of the sales leadership team and the progress that they've made over the last 12 months really those six months in particular really.
Really boost the understanding of our sales team on how to to sell our value proposition and a very compelling way as far as in 'twenty three and just in general how we would handle a downturn, what I'll turn that over to Jamie.
Sure.
First of all we haven't seen any downturn in.
Traveler demand.
A lot of strength, that's given us the ability to reemphasize the homestar platform at higher rates, which has driven better gross booking value and higher gross booking value per night sold.
Also just reiterate we feel really good about our third quarter guidance, our back half guidance.
We mentioned July 40% to 50% of the third quarter revenue.
Gross booking value, which is now in our rearview mirror.
<unk> is the second largest month of the quarter and the year, which we also have great line of sight on.
So you know feeling feeling really good about the back half and the visibility that we do have into the fourth quarter, even though that's a bit farther off 2023 is it's a bit tough.
Tough to make comment that at this point.
There's nothing concerning with the limited information we have.
In terms of the demand environment, obviously, a bit out of our control, but we are confident we can manage the business meet that guidance of positive adjusted EBITDA.
A couple of things from a macro perspective, we think the alternative accommodation category is really well positioned we now 40% of problems they need to vacation rental cover hotels because of the value.
<unk> mentioned that they can dine in instead of buying out sure homes with friends and really make it a.
A bit more.
Cost effective.
From a homeowner acquisition perspective, Matt touched on this a little bit, but potentially get a little bit easier as homeowners might need just a little bit more free up a bit more availability or you might see some churn reduction.
Given homeowners need income and there might be fewer sales in <unk>.
Real estate.
In terms of the business model, specifically, one we don't commit capital in order to earn revenue our business model is to earn a commission on the rental revenue, we generate for our owners and collect fees from guests. So our model is not to lease the homes from owners.
And then second is our cost structure, where 70% of our expenses our cost of revenue and operations and support which are largely variable on consumer demand.
And then the rest we have discretionary investments.
<unk> and technology that we can choose to what degree that we're accelerating our leaning into those or not so really strong business model with levers at our disposal. So were positioned really well and I'd also just remind you you know we've had positive trailing 12 month operating cash flow for the last six quarters.
And which means all of the portfolio spend that we do is discretionary. So that's another lever that we have at our disposal depending on the overall environment. So.
Really feel feels strong and found that the businesses resilient given the structure that we have.
And we'll see what happens from an overall environment perspective, but feeling really good and seeing great trends right now.
Thank you.
Yeah.
There are no further questions I'd like to turn the call back to CEO , Matt Roberts for closing remarks.
Well. Thank you all for joining us today and I just wanted to thank our team out in the field and in our offices that are making these type of results possible day in and day out and again to our homeowners for entrusting us with their with their homes and with the income generation that.
So thanks, everybody and look forward to catching up with you again next quarter.
This concludes today's conference call you may now disconnect.