Q3 2022 Vacasa Inc Earnings Call

Information regarding our non-GAAP financial results, including a reconciliation of non-GAAP results to the most directly comparable GAAP financial measures maybe found in our shareholder letter. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results and now.

Now I'd like to hand, the call over to Rob Rob.

Good afternoon, everyone and thank you for joining us it's a pleasure to speak with you all for the first time as the new Chief Executive officer of the caster.

Since I joined in September I've immersed myself in the business spoken directly with homeowners and guests about their experiences with the concept.

We had hundreds of team members from across the country in both our corporate and field operations organizations.

Most importantly, I've asked a ton of questions and taking time to listen fully to understand the opportunities that lie ahead for our industry, Our company and all our stakeholders homeowners guests employees communities and stockholders alike.

Okay.

Before we get too far along I'd like to take a moment to thank our local team members in Florida in the South Eastern United States that supported the costs as homeowners guests and communities. In addition to their own loved ones during hurricane in obviously in constant communication with teams on the ground when the store make landfall back in September when the worst of the storm had passed.

There was an overwhelming feeling of relief and gratitude when I heard all our employees were safe.

We are hard at work getting those homes affected by the storm back online on behalf of our homeowners.

Can't Express how thankful land all of those colleagues involved in the process.

On the call today I want to share why I joined the corsa and the tremendous opportunity ahead of US then I will offer my high level priorities for the business. Finally, I will turn it over to Jamie to review, our third quarter results and discuss our outlook.

I joined the concept with more than 20 years of experience in the travel industry and an unrelenting passion for technology. After starting my career working in software and technology. My first foray into travel came when I helped the founders and investors launched Hotwire now an Expedia group company later I joined Expedia myself.

First focusing on the strategy and operations of Expedia as air business before moving to a Gen Z as a corporate travel division of Expedia.

I led to Gensia and served on Expedia group's senior leadership team for more than 10 years under my leadership Egencia as revenue increased more than six fold and EBITA scaled from breakeven to over $100 million annually.

In vacation rentals today, I see a confluence of similar to what I saw in the early days of online travel business travel and what has played out across so many categories. There is a large dynamic market.

<unk> problem best solved with technology, and competitors, who fundamentally don't or can't use technology to learn and improve.

Currently the Casa has just a single digit share of more than $1 5 million whole homes listed on the major distribution channels in the United States Zooming out there are more than 5 million second homes in the United States and the easier we can make it for a homeowner to rent their second home the faster we can bring those second homes onto our platform.

There are numerous ways to address the opportunity within short term rentals, but I believe the <unk> technology first focus combined with its commission based business model positions us for success.

We generate revenue by earning a commission on the rental income we deliver to our homeowners and collecting fees from guests.

It is an asset light approach that doesn't rely on leasing vacation homes and holding liabilities for future payments on our balance sheet.

The commission based business model directly aligns our incentives with homeowners and provides us with operational flexibility.

The unit economics of the business model are the foundation of our path to adjusted EBITDA profitability for the full year 2023 and beyond.

We primarily add homes to our platform through the individual approach, which is a direct sales model, where the cost of sales representative sign up individual homeowners. This approach has a target LTV to CAC range of four times to five times and we remain above the high end of that range with the cost per new home, where the cat component.

<unk> relatively steady through the prior three quarters.

The constant is the leader in a massive growing and dynamic category I believe we have the right business model with attractive unit economics to support strong adjusted EBITDA generation over the medium to long term as we scale the platform.

We know that to efficiently and effectively managed vacation rentals at scale requires software data insights and dedicated team members all of which are bound at the concept for these reasons, we maintain a strong position in our industry and I believe we will compound our advantage over time.

Every confidence that we can and will continue to win in this space yet in the near term and as our results and guidance reported today demonstrate we need to sharpen our focus and execution.

I've only been with the business for a few months, but I believe I've learned enough to share my initial priorities at a high level.

First we need to improve our execution and local market and customer support functions to refine and improve our approach in these areas of appointed John <unk> as Chief operating officer.

During his nine years, serving as the CEO of turnkey John gained significant experience managing local market operations and designing associated technology tools I'm confident then at his new role John can bring that experience to drive efficient effective housekeeping field operations and customer support while delivering an unmatched homeowner and guest experience.

<unk>.

Second we need to unlock the full potential of the individual sales approach. The individual sales approach is truly unique in our industry and is designed to enable the costs to grow in a sustainable and profitable manner.

While there will always be the need to use the portfolio program tactically the bulk of our home growth will come from these sales representatives in the individual approach.

Back in August because updated you on the launch of our new.

The CRM system for the sales team this was a necessary investment for the business and we remain excited about the long term benefits, we expect to realize but the challenges from the implementation are lasting longer than planned and as a result, we arent realizing the expected productivity gains and response I've asked Craig Smith to step into the role of Chief commercial officer.

Were his primary focus will be on adding new homes to the platform and his role Craig will help our sales team to realize the benefits from our CRM investments and further optimize the individual sales process.

Third the <unk> product platform is the cornerstone of success and scale in the market today I want to be as close to the team as possible in the future building my understanding of the key processes decisions and priorities going forward to help me do that and to ensure we're working on the right opportunities with the right focus in the right way and leading the product team.

We recruit a new senior product leader at the cost.

Finally, I will always aim to make sure we are continuously prioritizing our business goals and initiatives and are allocating our resources appropriately to drive profitable growth. Following an initial review of the business. We made the difficult decision to initiate a workforce reduction in October in total about 280 team members were <unk>.

<unk>, primarily in our corporate functions, we are grateful to every one of our impacted colleagues for their contributions to the concept and offered impacted employees severance and access to career placement services going forward, we will continue to invest in resources, including people and the size of those investments as appropriate.

Over the past nine weeks at the concept I have only become more energized and excited about our potential we already have immense scale with a footprint across over 400 vacation destinations that would take considerable time and capital to replicate while I don't have all the answers I am confident that we are taking the right initial steps to allow the <unk>.

<unk> to realize its full potential.

One last comment I'd like to welcome Rachel Gonzalez as a board Observer Rachel comes to the cost of with public leadership experience across industries from travel technology to retail service and will bring a value perspective to the board we intend to seek stockholder approval to expand the size of our board and to elect Rachel as an independent director at our <unk>.

Annual meeting of stockholders I would now like to turn the call over to Jamie to review, our third quarter financial results and outlook.

Thanks, Rob our third quarter revenue finished ahead of our guidance.

Rob alluded to in his remarks, we experienced higher than expected local market and customer support costs during the quarter.

Do you see this in our cost of revenue and operations and support expenses cutting third quarter adjusted EBITDA to come in below our guidance.

The booking strength, we had experienced over the prior two years, our operation teams were staffed for high levels of demand.

Meet and exceed service levels in a high growth environment.

Demand was strong during the third quarter, but we were over resource in several areas and that cause us to exceed our forecast.

Furthermore, heading into the third quarter, there were a number of operational efficiency and optimization initiatives the team with walking trails.

We believe that these would reduce our operational costs largely in local markets around the way we staff labor as.

As the quarter progressed, we werent able to fully realize the benefits from these initiatives, which led to higher cost of revenue and operations and support expenses versus our forecast.

We believe that the cost overruns largely deal with our processes and approach to managing our operation.

Based on where we sit today, we believe these local market and customer support costs are fixable, but not yet.

And we will take time to fully address.

To reiterate what Rob said.

We are highly focused on improving our execution and operations.

With that let's review our third quarter results.

Unless noted otherwise I will be comparing our third quarter results for the third quarter of 2021, and I'll be referencing the operating expense line, excluding the impact of stock based compensation and business combination costs.

You can find outlined in our shareholder letter.

Gross booking value, which is the combination of <unk> and gross booking value per night.

$959 million in the third quarter.

25% year over year.

Thanks to all of our $2 1 million in the third quarter up 12% year over year with the increase primarily driven by the addition of new homes to the platform.

Gross booking value per night mode reached $471 in the third quarter up 12% year over year.

Remember there is a strong relationship between night food and gross booking value per night build and it's difficult to look at either in isolation.

Our revenue management algorithms and team are constantly evaluating the trade off between price and occupancy to optimize the mix of Mayfield and gross booking value per night build with the goal of optimizing homeowner income.

During the third quarter at the supply of homes on our platform outpaced Tonight photograph and similar to prior quarters, we price those nights at a high rate.

Revenue, which consist primarily of our commission on the rents we generate for homeowners and the fees we collect from guests.

$412 million in the third quarter up 25% year over year and above our guidance range of $385 million to.

$195 million.

Now turning to our expenses.

The revenue was 42% of revenue in the third quarter consistent with the same period last year.

Operations and support expenses grew 37% year over year and increased by 160 basis points as a percentage of revenue year over year.

Both cost of revenue and operations and support expenses were higher than our expectations relative to revenue for the reasons I discussed a few minutes ago and were the primary drivers of the adjusted EBIT shortfall relative to guidance.

Technology and development expenses were up 42% year over year, as we've grown our software infrastructure and engineering and product teams.

Sales and marketing expenses were up 49% year over year with the increase due to our significantly larger sales force compared to a year ago and in turn greater homeowner focused advertising spend to drive more leads for our larger sales force.

Sales and marketing expenses also higher due to higher fees paid to distribution partners driven by the growth of gross booking value.

General and administrative expenses were up 44% year over year.

Due to hiring to support the increasing scale of our business and to meet the increased compliance and reporting requirements associated with our operations as a public company.

On a sequential basis general and administrative expenses decreased slightly.

Adjusted EBITDA was $46 million for the third quarter below our guidance range of $55 million to $60 million with the shortfall largely due to higher cost of revenue and operations and support expenses relative to our expectations.

In the third quarter, we on boarded seven portfolio for a total consideration of $3 million.

This was consistent with the expectations, we outlined in August that we expected to spend less on new portfolios in the second half of 2022 relative to the first half.

Now a few forward looking comments please.

We've previously outlined that we expected homes on our platform to increase by about 30% during 2022.

Based on our latest pacing, we now expect home growth on our platform to be nearly 20% for the full year.

And we will provide a year end home count on our fourth quarter earnings call.

We mentioned last quarter as fully as we on boarded in the second quarter tended to be higher performing on a revenue per home basis, resulting in a higher purchase price per home, but the average multiple paid was in line with our valuation targets.

On fewer but higher revenue generating homes as a headwind to the approximately 30% home growth target.

Despite the headwind we increased our internal expectations for the individual approach based on productivity gains we expected to realize from the CRM implementation that haven't yet materialized.

Our guidance, we expect fourth quarter revenue to be in the range of $195 million to $215 million.

Our fourth quarter revenue expectations are lower than the implied fourth quarter guidance, we issued in August .

We're experiencing some softness in variability in guest bookings that began after the strong summer season, the weakness with noticeable in September and has become more pronounced in the fourth quarter.

We expect fourth quarter adjusted EBITDA to be in the range of negative $75 million.

To negative $65 million.

Again, this is lower than the implied expectations, we set back in August due to lower revenue, but it is also a function of a higher operational costs continuing into the fourth quarter and not fully realizing the efficiencies from the operational initiatives.

Finally, while we aren't issuing formal 2023 guidance at this point I want to share a few high level thoughts on next year.

Year to date, we spent over $150 million of cash on the portfolio program between new purchases and deferred payments with additional spend occurring in the fourth quarter.

We're thrilled with the quality of portfolio as we brought on board over the past year, but it was a bit of a pull forward of investment relative to our expectations of $100 million annually.

We think about the year ahead, we expect to meaningfully reduce the amount of capital we're allocating to the portfolio program.

We will continue to evaluate our portfolio opportunities, but given the LTV to CAC on the individual approach we are raising the bar on return expectations for portfolio deals and we'll prioritize new market entry.

Additionally, with the recent softness in variability in bookings and the uncertain macroeconomic environment. There is potential for average gross booking value per home to decline year over year and 2023 from the recent record levels.

On the expense side, we aim to strike a balance between growth and profitability and expect to closely manage our discretionary investments to achieve adjusted EBITDA profitability in 2023, even against a wide range of macroeconomic outcomes.

With that Rob and I will take your questions. Operator, Please open up the line.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the question and answer roster.

Your first question comes from the line of Doug Anmuth from Jpmorgan. Your line is open.

Yeah.

Hi, This is for Doug Thanks for taking my questions.

First of all so.

On your comments.

Some variability in gross bookings that began in September of <unk>.

I assume some of the.

Some of the drivers of that.

Yes.

And does it impact that a little bit more on health could be driving that and is this something that youre seeing across all your distribution channels.

Yeah, absolutely. Thank you so.

From the weakness you are right.

We must as relatively new kind of began towards the end of the third quarter, particularly with the.

The forward looking book or the forward advance bookings and seeing some variability in our booking trends that have deviated from previous.

Previous years.

Prior to that the booking curves for fourth quarter were really following a pretty predictable path, but over the last five weeks, we've seen some more volatility in those cars.

We're in the midst of a big booking period for November right now despite it despite it being November 9th we still have the largest booking dates for December ahead of us.

In terms of drivers of the weakness.

It's tough to identify exactly what the driver is.

Do we think about possibilities consumer demand or macro environment comes to mind.

And it leads us to believe given kind of overall commentary around the travel sector that is primarily related to our category and the footprint that we have in domestic leisure focused vacation rental markets.

But hard to pinpoint obviously exactly what causes at this point in time.

Your second question, we are seeing this across all of the channels, we're not seeing any one in particular that's deviating.

Got it thank you.

Your next question comes from the line of Bernie Mcternan from Needham and company. Your line is open.

Great. Thank you for taking the questions maybe to start just the lack of CRM gains in the quarter is that just is that the salesforce not using the technology or a late rollout or just trying to understand maybe how the individual approach could be either more effective in the fourth quarter and 2030.

Yeah, So just to kind of breakdown the CRM, there's there's a couple of pieces.

We transitioned to the CRM during the second quarter.

As we discussed in our second quarter call and as we expected there were some growing pains you know getting the salesforce trained on the new system and processes is getting all of our data over from the old system into the new system.

We resolved most of these issues over the summer everybody is using the new system and.

And coming into the third quarter, we expected the productivity to actually ramp backup to.

No no not only to the pre CRM productivity levels, but actually be a step higher given the new tools.

So at this point, we're back at about that pre CRM transition productivity levels.

In line with the productivity levels, we had originally expected for the year, but we just haven't seen that productivity boost above those levels that we had anticipated we do believe that those are still to.

To come there's just additional work to continue to build out the technology.

Just something.

As.

Rob said in his remarks, that's what Craig is going to be doing.

As we think about kind of the unit growth.

We've generally said that we expect 75% of our gross adds to come from individuals and 25% to come through portfolio.

We did actually spend a.

A bit more on portfolio in the first half of the year and there were higher revenue per home.

And also you know consistent multiples with what we would expect but as we mentioned that put some downward pressure on our in our hometown.

So that was a headwind and as I mentioned, we expected that individual would be able to make up that gap. So individual is pretty much in line with where we had originally anticipated.

So it wasn't able to fully close that gap. So we're still above that four to five times target LTV to CAC. We're pleased with the performance of the individual unexpected keep investing against that but we do believe that there's continued upside there.

Okay and then.

I know youre, not providing 23 guidance, but is there any more.

Should we think about any deviation from the original investor deck in terms of additions.

Supply for next year.

Yeah. So we mentioned that we expect to finish 2022 with home growth near 20%. So when you think about what we said for next year will be meaningfully reducing spend on the portfolio program. Since we had a little bit of pull forward there.

And we're making sure that will you reach adjusted EBITDA profitability, so that could impact how fast we grow our sales force. So given those two dynamics, we believe that our home growth rate would be below the 22 levels.

How much lower it's going to depend on overall business performance how.

How fast we can recognize these CRM productivity gains.

And the overall economic environment.

Great. Thank you for taking my questions.

Yes.

Yeah.

Your next question comes from the line of Justin Patterson from Keybanc. Your line is open.

Great. Thank you very much Rob I wanted to dive a little bit more on tasiast.

Our focus on improving local market and customer support functions.

Cleaning fees service fees has been a pretty sore point throughout the alternative combinations industry over the past year or so so would love to hear about how youre thinking about a just containing costs. There and then be increasing turn times four for people in local markets. Thank you.

So I guess I'll jump in and give them 60 days in it and then I'll, let him add on Justin but you give them a little bit of air cover given these brand new.

In terms of the overall kind of fees.

We are revenue managing the overall ecosystem and making sure that we can maximize our owner income as well as the cost of revenue. So we're making sure that you know we have cleaning and service fees that makes sense or not out of line with with market, but at the same time, we aim to make sure that we can cover our cost.

So in terms of the local market.

Execution and costs you know we talked about that we are we are in the process of implementing a number of initiatives that really address how we manage our labor in local markets driving efficiencies in various tasks and optimizing the number of hours or our team members that are needed to staff against reservations or unit.

We'd plan for these to manifest in the back half of the year and kind of incrementally recognize those benefits.

The back half and going forward, so, it's taking us a little bit longer than anticipated, but there is a significant amount of focus and effort on.

On local local market operations cost efficiencies.

Bob anything else you want to add.

No I think thats, great Jamie Thank you.

Got it thanks, Jamie.

Your next question comes from the line of Jed Kelly from Oppenheimer. Your line is open.

Hey, I'm, great. Thanks for taking my questions.

Just a couple if I could just one going back to the.

Adding inventory and then forgive me. If this was mentioned that the managing multiple calls are you seeing anything from like a competitive environment or are higher end or is there anything from like higher interest rates I would think higher interest rates would increase your.

Opportunity and then Rob I know, you're new but is there anything you and JV are planning on fundamentally changing with Mcarthur.

So I'll take the first half and then let Rob take the second thanks, Jack So in terms of competitive, but not seeing anything that anything different nothing material on the competitive side that's.

Causing anything on the on the unit growth in terms of interest rates.

I'd say, it's too early to tell either way you know on one hand turn is homes for sale is the largest driver of our churn, which you would think could be favorable but on the other hand, when fewer homes are changing hands.

There, there's not the opportunity to also change the vacation manager of those homes. So I think we still need some time to see how those two forces net out, but really hasn't haven't seen anything clear obvious one way or the other but generally you know given how big the Tam is more than a million and a half homes on channel today $5 million in the <unk>.

We just don't believe that the macro would have a significant impact either direction given the size of the prize and the share there.

Very small share that we have today.

And Jeff on your second question, Thanks very much.

Just I've been onboard for about nine weeks now and continue to believe that the copper has an enormous opportunity ahead of it I mentioned in our remarks I'd just love to set up for the business. We have we have great scale, and where multiples larger than our closest peers. We have an opportunity to use technology to solve a hard problem in the industry and there's players where.

Going against that either Walter Cantor just don't compete in the technology game. So I think when I look at situations like this from the outset the advantage of technology isn't apparent on the surface, but you've just seen it time and time again it compounds over time and results and just great businesses that you can you can really allocate capital behind and I've seen that play out in online.

Travel has seen it play out in corporate travel and and other sectors as well at the same time as I mentioned, there's clearly a lot of work that we have to do the whole leadership team is focused on it we have to improve our execution and that means sharpening our focus of outlines some of the initial changes we made from an organizational perspective.

It's really about putting people in roles, where they have strong histories of success and.

Thats.

It's still going to be a lot of work that she knows it won't be easy and it will take time, but it is going to come down to execution. So sitting here today excited about what's ahead looking forward to sharing more of our detailed plans after I spend more time with the business and we get into our fourth quarter earnings next year.

Yeah.

Great and then just just one more I know last two years I mean, the vacation rental that.

Just had an unbelievable two years for Revpar I guess, just looking ahead into next year. It seems like you could have ADR compression. So just can you talk about how you're thinking of managing revpar between and discussing with your owners and how youre thinking of managing revpar between ADR and occupancy and with your revenue management system.

Thanks.

Yeah. It's a it's a great question, we've obviously seen record levels of both occupancy and gross booking value per night per night or or ADR as.

We said it's early to tell we have very little insight some bookings on the books for 2023, we're actively revenue managing them and trying to get bookings bookings in but I'd say, it's too early to call for kind of the overall broader ecosystem, but you know our revenue management alder.

<unk> and team are constantly looking to manage that trade off between occupancy and ADR I think you've obviously seen ADR take the front seat in the last couple of years. So there there is a possibility that we shipped more towards kind of you know driving on the occupancy side, but again, we want.

Oh, you know optimize overall for our homeowners income.

And for our revenue.

Thank you.

Okay.

Okay.

Next question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open.

Thanks, so much for taking the questions I just want to go back and maybe double click on some of the points that have already been made on the call in terms of the variability you're seeing in forward advanced bookings over the last five weeks is that are popping up in terms of cancellation rates is it elements of the booking window being extended out is it element.

Of less gross bookings overall and in particular are there any geographic or type of <unk>.

Stays that youre seeing that variability being more pronounced or not that'd be number one and then just coming back to the CRM efficiency gains could you just give us a little bit better sense of what needs to be done on the execution side to sort of capture those games and should we be thinking about that in terms of the next one to two quarters or is this.

The process that could play out over the next six to 12 months. Thanks, so much.

Yeah, absolutely. Thanks for the question, Eric So in terms of the variability.

I think it's more about the bookings as opposed to the cancellation rates, we're not seeing any increase meaningful changes in cancellation rates that are notable it's more just the <unk>.

Booking patterns of of new bookings coming.

Coming on and I think some of that gets into just there is inherent you know there has been more variability in that.

Kind of closer in booking window as we look at where we sit today in October as we look in sorry, as you sit today and we look at November and December .

Just kind of some volatility and what we're seeing there nothing that I would note regarding G O R or types of homes that really jumps out you know we're looking at this kind of across the portfolio, obviously doing everything we can to optimize our revenue management stance and drive additional bookings and value for our own.

Owners.

In terms of the CRM and what needs to be done look some of it is the first step of the CRM is making sure that we're at parity with what we had previously and that means as we mentioned getting people trained getting all the data ported over and then there is there's a there's opportunities for additional functionality additional insights in terms of how.

We manage campaigns and marketing and lead.

Lead leader allocation.

That just takes a lot for taking a little bit longer to manifest as we develop and within the system.

And so I'd say, it's something that we believe that there is there's opportunity as we look out kind of incrementally over time, it'll it's difficult to say exactly how quickly that manifest, but we do believe that there is a material opportunity there.

Great. Thanks, Jamie.

Your next.

<unk> comes from the line of Nick Jones from JMP Securities. Your line is open.

Great. Thanks for taking the questions I guess, maybe taking a step back.

It was kind of.

Fears of recession continue to increase heading into next year I think there's there's been some comments out there that could actually add more supply.

To the ecosystem as people are looking to maybe augment their income.

How do you see that kind of playing out is that kind of a likely outcome and then does that exacerbate maybe.

Our declines.

Into next year.

Yeah. It's a great question I'd say, it's still early days in terms of how.

The macro environment, what actually manifest, but I think in theory what.

What he said is there a kind of a few aspects of that one is reduced churn as we mentioned home selling is the greatest the largest driver of churn from our platform. So that is potentially a benefit to us I think that there is definitely a possibility where we see that there is a greater willingness of owners to rent their home maybe those that havent previously.

Done so because they want that additional income I think generally speaking this has been an industry that has been extremely supply constrained.

And there's been a lot of consumer demand so.

Will that have a significant and meaningful impact on you know ADR. It it's tough to say I mean, obviously youre going to have some more supply, but generally speaking it has been a very supply constrained ecosystem. So I think that that additional supply is is welcomed across the industry and we look forward to bringing on more.

More homes onto our platform more owners onto our platform.

Great and then and then I guess.

Along the same vein here.

I mean do you have a sense are you able to share kind of the mix of the properties.

Causes are managing.

What are kind of fully dedicated to be short term rentals versus someone's vacation home that they are kind of putting up.

Periodically and I guess what.

Why I'm asking the question is around has home prices impacted kind of the level.

Of ADR summit.

The owners are actually willing to go down like how low are they willing to go because they maybe purchase some of these homes at elevated prices as we see the housing market kind of revert is that a dynamic you're seeing play out at all.

Got it yeah, you know I think that we do have a mix of some investors I'd say the majority are going to be people, who own the second home and they might vacation there a few times of the year, but it's not their primary residence. So we're still going to get the majority of up nights available to us to sell so.

I don't know that we're foreseeing anything significant or meaningful yet in owner behavior as it relates to how frequently they're occupying their own homes, but again I think time will tell on that as another potential variable, where perhaps we see some upside you know with people preferring to get income from those nights from that July 4th weekend does.

As opposed to occupy in the home themselves.

Great. Thank you.

Yes.

Your next question comes from the line of Lee Horowitz from Deutsche Bank. Your line is open.

Great. Thanks for the question and thanks for the color you've given on both supply and <unk> next year.

At a high level, how are you thinking where occupancy rates may go in next year is the expectation that this may continue to decline year on year, given some of the softness that you're currently seeing across the industry.

And that there could be a bit more stable.

Potentially even higher given some of the pressures that you're highlighting on the AVR is Edison on occupancy next year would be helpful. Thanks, So much.

Yeah, I think as I mentioned, we look at these two variables in concert with one another you could drop you're right significant drive very high occupancy, but that's not necessarily the optimal outcome for the owners or vice versa, right, where you have rates really really high and low occupancy. So we're always trying to strike that balance this year obviously.

Skewed more towards ADR.

ADR and we talked about that obviously those are those have been on the higher funding. We are starting to see a little bit of pressure on the occupancy side, where that ultimately nets out it it's tough to say, but I think you know.

Youre right in hearing that.

We do see ADR pressure in that coming down I think that you would see occupancy benefit from that and you know again, just because those two things kind of are working in concert with one another and that is the job of our our revenue management team and our algorithms to keep maximizing a homeowner.

Income.

Great. Thanks, and then maybe one more on costs in terms of the initiatives, you're taking to right size. Your field operations costs, how should we be thinking about the timeline to achieving these goals, particularly in an environment, where ADR declines next year could actually create some natural deleverage and support costs.

Yes, we are.

We're actively working on these issues is as we've mentioned these are fixable. These initiatives are in place, they're just taking a little bit longer to manifest, but we do expect that we will have some of this benefit as we.

Go into 2023 and in building from from there. So you know the initiatives really again, we're kind of how we manage our local labor in local markets. How we can drive efficiencies in specific tasks.

Housekeeping or laundry for example, and then again optimizing the hours or team members that we need to be stocked against units or reservation. So theres a number of things that we're doing from technology to process changes that we're putting into place.

And a lot this year about kind of what it takes to get those.

Those initiatives rolled out and we do need a little bit of supporting technology and process work that is underway.

Helpful. Thank you.

Okay.

There are no further questions at this time.

Mr. Rob Graper I turn the call back over to you.

Thank you very much just before we close I wanted to add that we are tracking tropical storm, Colin which is impacting Florida right now our operations teams are monitoring the situation closely and we'll be ready to support our owners and our guests and our communities in the southeast in the coming days.

And as we're wrapping up I'd like to thank the across the board for the opportunity to lead I'm really honored to have the chance to serve as CEO of an industry leading business that saw so much potential ahead of it.

Next I'd like to again welcome Richard Gonzalez as a board observer Lucky and thrilled to have around our team and finally, maybe most importantly, I want to thank our homeowners and employees who are homeowners. We appreciate youre trusting us with your second home. It's a responsibility we don't take lightly and to our employees. Thank you for the hard work facilitating and servicing over 2 million nights sold during.

Third quarter wasn't an easy task and I look forward to meeting you and spending more time with more of you in the <unk>.

Quarters come thank you.

Yes.

This concludes today's conference call you may now disconnect.

[music].