Q1 2023 Rover Group Inc Earnings Call
Good day, and thank you for standing by and welcome to the Roper first quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session will need to press star one on your telephone you will then hear an automated message advising you Haynes is raised to withdraw your question.
Please press Star one again, please be advised today's conference is being recorded I would now like to hand, the comps or what are your speaker today, Walter ready of Investor Walts already Russ relationship may begin.
Good afternoon. Thank you for joining us to discuss Rovers first quarter 2023 earnings results and 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 got Rover Dot com.
As a reminder, this call is being webcast live from our Investor Relations website and is being recorded and will be available for replay from our Investor Relations website. Shortly after the call.
With me on the call. This afternoon is Aaron easterly Chief Executive Officer, and co founder, Brian Turner, President and Chief operating Officer, and Charlie Rick Herbst, Chief Financial Officer Robert.
Before we begin I'd like to remind everyone that management may make certain forward looking statements within the safe Harbor provisions of the Securities Litigation Reform Act of 1095 on this call.
Putting future GAAP, and non-GAAP financial and operating results and targets.
This metric performance in 2023 financial guidance marketing and other strategies anticipated future growth.
Prospects margins profitability and liquidity.
Expected investments in initiatives macroeconomic public health and travel factors in Chinese.
Partnership and expansion opportunities U S and non U S market growth expectations and opportunities and other future events industry and market conditions.
Forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied during the call, including the risks and uncertainties included under risk factors and elsewhere in our Form 10-K filed on March 19 2023.
And in our upcoming first quarter 2023 Form 10-Q.
All forward looking statements speak only as of today and are based on current expectations estimates forecasts and projections and are beliefs and assumptions of management.
We undertake no duty to update this information unless required by law.
You should not place undue reliance on forward looking statements as they are not guarantees of future performance.
We will also discuss certain non-GAAP financial measures.
The most directly comparable GAAP financial measures and historical reconciliations to the most directly comparable GAAP measure can be found in the non-GAAP reconciliation supplement posted under news and events presentations at investors got Rover Dot com.
For the reasons discussed in the non-GAAP reconciliation supplement we have not provided the most directly comparable forward looking GAAP measure or a reconciliation of any forward looking non-GAAP measures.
non-GAAP financial measures should not be considered as a substitute for or superior to GAAP financial measures.
Unless otherwise noted we will compare our Q1 2023 metrics to Q1 2022, and this call with that let's get started I'll now turn the call over to Aaron easterly co founder and CEO Aaron.
Thanks, Walter and thank you everyone for joining us today I will start by outlining our high level first quarter 2023 earnings results and give a few highlights before turning over the call to Brent to provide additional details on our bookings and investments.
Charlie will then wrap the prepared remarks by walk you through the financials and our detailed guidance before we take questions.
Had an outstanding first quarter, surpassing our expectations as a result, we are increasing our revenue and adjusted EBITDA guidance for the year.
First quarter gross booking value was $209 million, while revenue was $41 million.
Adjusted EBITDA was $575000 or 1% margin, our first ever Q1 with positive adjusted EBITDA.
Beyond these top level results for the quarter was highlighted by the following.
First we had significant flow through of incremental revenue to adjusted EBITDA we.
We efficiently invested in marketing, while remaining focused on managing expenses.
This positive adjusted EBIT margin of 1% is an improvement from the negative 17% margin a year ago.
Second we saw solid new customer bookings of 208000, a 16% increase year over year.
We are pleased with our growth in new customers and believe that our business has continued to scale at a rate that outpaces the natural growth of the category.
Third our customer cohort performance increased.
Expected revenue from customers acquired during the quarter outpacing last year's record driven by higher Abb's and additional bookings per customer we.
We believe these improvements are partially attributable to our ongoing efforts to improve our value proposition and customer experience. Additionally, while the new customers have continued at a record pace. We are also seeing that the pre COVID-19 customers have now recovered to the incremental net revenue trends. We would have expected had there been no pandemic.
Four we've had sustained strong growth in our non U S markets Q1, <unk> was up 68% year over year importantly, the same improvements to our unit economics that led to the U S market share gains are starting to play out in Europe .
We believe this allows us to be even more aggressive in driving growth going forward.
And finally as part of our suite of initiatives intended to drive cost effective awareness and deepen our day to day relationship with Pet parents, we launched for over a year a collection of leases and harnesses.
They are designed to meet the needs of pet parents and care providers incorporating feedback from our customers. In addition to our unique expertise.
We are proud of the team's accomplishments this quarter and there is a lot of opportunity that remains.
We have helped over 4 million pet parents book loving and trusted care, including nearly 1 million new pet parents in the past 12 months.
With approximately 87 million pattern in households in the U S alone we have a significant opportunity to further our mission of making it possible for everyone to experience the unconditional love of a pet.
Our Q1 performance was strong and we see an exciting opportunity for further progress towards our long term operating objectives.
With that I'll turn the call over to Brent to discuss our bookings and operational performance.
Thanks, Aaron and Hello to everyone on the call.
I'll begin by providing more commentary on the performance of the business and driving booking volumes have been moved to marketing expenses and the execution of our marketing strategy. Finally, I'll say, a few things about our product investments during the quarter.
In Q1, we continued to generate significant new and repeat business from our platform.
Total bookings increased 27% versus Q1 2020 to repeat.
Repeat bookings were $1 3 million or 29% increase year over year, and new bookings totaled 208000 up 16% year over year.
We are particularly pleased with our new bookings performance, although we observed sluggish category demand through April .
The rubber marketplace outpaced the category nicely.
Our growth over 2022 was also positively impacted by the soft Q1 last year due to the omicron wave.
Turning to marketing in Q1, non-GAAP marketing expense was 22% of revenue in the middle of our target range of 18% to 25%.
As we stated on our previous call we are gaining conviction around the returns for our more nascent marketing channels.
As a result, we are expanding our marketing efforts, even amid small swings and category demand.
For example in the United States. We concluded a test of next door advertising with positive results, we plan to build on in Q2.
We also increased spend on Youtube some of which represented new additional testing.
Further we kicked off the development of a meaningful refresh of our video creative in order to leverage a more rapid test and learn methodology.
We plan to deploy this approach across Youtube and other video channels, such as streaming and linear TV.
We also concluded our first Youtube test in the UK with positive results that we plan to build on in Q2.
Finally, rowers integration into the current season of the TV show working moms. So its first airing in Canada on CBC and we're excited about its global expansion on Netflix which started in April .
Last I would like to make a few comments about our product marketplace and engineering teams contributions to the strong quarter.
And considering improvements to Rover, we're always led by feedback from the pet parents and care providers on our platform.
We also believe that most improvements in two sided marketplaces, if conceived and executed properly translate directly into powerful financial returns for the business.
Against that backdrop, we are happy to report that Q1 investments to simplify our booking flow.
Projected to help Rover acquire an incremental 15000 customers over the next 12 months.
Investments to health care providers understand how to succeed on Rover have boosted new customer conversion and repeat booking rates on the platform.
And continued investments to increase the effectiveness of matches between pet parents and care providers have further notes, new customer acquisitions upward, enabling us to outpace industry demand.
It's also worth mentioning that these improvements are on top of the platform benefits from recent investments in trust and safety and the scalability of our operations, which we expect to be additional contributors to our financial performance in the future.
We are proud of our results this quarter as our team continued to drive both new and repeat customer bookings while building scale.
Now I'll hand, the call over to Charlie to provide further detail on our financial performance.
Thanks, Brad.
I'll start by providing an overview of our financial results for the quarter followed by guidance as.
As Aaron stated the quarter was strong including a significant step forward in achieving our first ever Q1 with positive adjusted EBITDA driving a significant improvement in adjusted EBITDA margin year over year.
This demonstrates the margin leverage possible as we continue to scale towards our long term targets.
For the quarter revenue was $41 million up 48%, while <unk> was $209 million up 36%.
The increase in revenue was primarily driven by the 27% growth in bookings, a 7% increase in ABV and an improvement in cancellation rates to 11, 6% from.
From 12, 7% in Q1 2022.
Additionally, there was a positive impact from an increase in our recognized take rate from 22% in Q1 2022 to 23, 2% in Q1, 2023, which benefited from the cancellation rate improvement and the continued upward mix shift and owner and provider side fees.
Our first quarter ABB was $142 up 7% year over year.
As expected this rate of growth has continued to moderate the main driver of ABB growth with an increase in average price per unit of service.
First quarter cancellation rate was 11, 6%.
And an improvement of 110 basis points versus the first quarter of 2022, as we lapped Amazon and following the trends we have observed in third party disease measurement data.
As discussed on prior calls and improvement in the cancellation rate is meaningful to our margins and a 100 basis points in cancellation rate has tended to equate to approximately 100 basis points and adjusted EBITDA.
Moving to expenses.
Due to the disciplined approach of our team we were able to efficiently invest in marketing to drive growth, while managing cost effectively while.
While the majority of our bottom line was driven by strength in revenue, we also yielded efficiency and expenses specifically in operations.
non-GAAP operations and support decreased approximately $300000 quarter over quarter and decreased from 18% to 16% as a percentage of revenue year over year as our consolidation to a single outsource provider started ahead of schedule.
As Brent mentioned non-GAAP marketing expense was 22% of revenue in the middle of our target range and then an improvement from 25% to 22% as a percentage of revenue year over year demonstrating.
Demonstrating efficiency, even during our seasonally low period.
Consistent with our prior comments, we continue to believe that our cost structure is generally right sized for the operating environment, which resulted in modest growth in our remaining expense items.
Adjusted EBITDA was $575000 or a margin of 1% up from the adjusted EBIT loss of $4 8 million or margin of negative 17% in Q1 of last year.
Our improvement in adjusted EBITDA was the result of strong revenue along with the moderate increases in fixed cost investments and marketing spend within our target range.
We remain committed to showing the strong margin leverage potential of our business.
And our ability to scale profitably.
Moving to the balance sheet, our cash cash equivalents and investments was $265 million as compared to $273 million at year end 2022.
The decrease was driven by Prepays, primarily for annual contract renewals of approximately $5 million and $3 million of spend on our stock repurchase program from its inception in mid March through the end of the quarter.
Through may 3rd we have repurchased a total of one 7 million shares for an aggregate purchase price of $7 4 million.
I would like to give thanks to the whole team at Rover for their dedication and discipline and continuing to grow the business while scaling our margins in total our business continued to deliver fantastic top and bottom line results during the quarter.
Now turning to guidance.
As Eric discussed we are excited by our performance to date, though we recognize that much of the year is still in front of us.
As such we are raising our full year guidance to account for our over performance in Q1, while continuing to include potential impacts of a mild to moderate recession and other macro disruptions related to public health concerns or travel.
A recession that is more mild or occurred later than we modeled it may result in incremental upside to our new increased guidance.
For the full year 2023, we now expect revenue of $207 million to $217 million, which at the midpoint would be a 22% increase in revenue over 2022.
And adjusted EBITDA of 29% to $34 million.
For the second quarter, we expect $51 million to $53 million in revenue, which at the midpoint would be a 20% increase in revenue over Q2 2022.
$3 million to $5 million and adjusted EBITDA.
In summary, we are excited about our overall performance during the quarter and look forward to continuing to execute against our priorities. This year to drive growth in the topline while marching toward our long term margin goals.
We look forward to connecting with you again to discuss our progress in Q3 and with that we will now turn to questions. Operator can you open it up for Q&A.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered and wish him with yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
Our first question comes from Tom White with D. A Davidson your line is open.
Great. Thanks for taking my questions, maybe two if I could.
I guess first when you guys look out over the landscape this year and beyond what do you see as some of the key investments maybe you need to make on the caregiver or supply side of the platform that will continue to drive more caregiver growth more engagement with caregivers.
Just ways to maybe gain deeper relationships.
And market share with them.
It'd be number one and then just secondly in the prepared remarks, I thought I heard I mentioned, maybe sluggish category demand in April could you maybe just.
Just unpack that a little bit explain.
What you're seeing thanks.
Hi, Tom It's Brent here. Thanks.
Thanks for the questions.
On the supply side I think we've said in.
Previous calls that.
In general in terms of acquiring the amount of supply suppliers that we need we don't really we don't really have to do a lot from a marketing standpoint.
Yes.
Generally speaking in terms of helping our care provider succeed on the platform.
Our general strategy is to move to continue to make investments in our platform such that they understand how to.
To unlock the benefits of working on the platform and that we.
And that we have.
Gotten ahead of a lot of the pain points that they are there.
They are in front of them.
As they work with.
Pet parents.
Over the past year, we've increased our conviction that we have done a good job of anticipating those pain points and addressing them, but we've not done as good a job of communicating how to leverage them.
So a lot of our investments this year are towards making sure that our care providers to understand how to leverage the platform that makes sense.
Yes.
<unk>.
This category demand.
We were talking about that as a particularly as it relates to new customer.
We use in terms of our own metrics, we use a basket of.
Terms and Google that are observable and Google trends that.
That.
Go toward our category.
And in Q1, we and.
And over time those.
Those terms the volumes under those terms.
It had been sort of predictive of what sort of demand we see across the platform.
We observed the volume changes in that basket in Q1 to be down.
Low double digits, 10% to 20%.
I'm pretty happy with how we've responded to that though our recent improvements that from a product standpoint in terms of conversion rates have helped us continue to outpace the category as we said on the call.
Okay, great. Thank you very much and nice start to the year.
Okay.
One moment for our next question.
Okay.
Our next question comes from Cory Carpenter with Jpmorgan. Your line is open.
Hey, guys. This is Danny factor on for Cory Carpenter I just have two quick ones.
So the first one as we're seeing many companies pursue cost savings by means of reducing office real estate a lot more flexibility on remote work can you talk about any color on return to office trends.
On the second can you talk about what drove the improvement in cancellation rate and <unk> and if you're making any assumptions around how cancellation rate will trend within your guidance. Thanks.
Yes.
Danny it's nice hearing from you.
Tell Cory we said high with regards to an office policy, we operate a hybrid structure where employees.
Can come in or work from home for the most part we have some teams that are required to be in the office multiple days per week and then other people that are full remote we don't see a big need to change that right now we would expect to evolve it as we collect more data and how we're doing as a company and how employees are doing.
But we don't expect to have major changes on our lease obligations in the near term, although we could opportunistically look at some opportunities.
Presented themselves.
And Danny this is Charlie with regards to the cancellation rate improvement.
A couple of things that have been going on.
About 12 to 18 months ago, one of the things that we introduced was the ability for providers to adjust and change that our cancellation rate policies.
Previously they were pretty favorable to pet parents, where cancellations could take place all the way up until the day. The stay was supposed to start with.
With the introduction of those and with the burn and providers setting.
A little bit more stricter cancellation rate policies overtime, that's helped improve cancellation rates modestly in addition to that and I tried to hint on us on the call as well.
The macro trends that we have seen since the pandemic started and played out over the last couple of years as there was a pretty high correlation between or the relative change in our cancellation rate, but the relative change in the amount of disease that we were able to see in third party wastewater.
Data tools and what we had observed as during Q1 of this year that started to tick down.
Quite a bit relative to the year ago period, and a lot of last year and we saw our trend in cancellation rates stay the same.
Thanks, guys.
One moment for our next question.
Our next question comes from Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the questions. Obviously in the release, you talked about increasing customer lifetime value and you've made a couple of references around marketing and churn. So far can you help us better understand some of the unit economics that you're seeing and how we should be thinking about driving higher lifetime customer value over a multi year.
Time frame for the platform and how Youre thinking about what you are learning today, and possibly projecting that forward away from what may or may not happen.
Near term from a.
Yeah.
Sure let me start with the second piece first stab as Charlie alluded. We do continue to think its prudent to plan for mild to moderate recession.
Such that there will be some.
At a high level seems like the growth in leisure travel is moderating.
And maybe will moderate even further into Q2 and Q3, so I think thats kind of our baseline.
We think that there is a possibility that that would accelerate our daytime services business.
And that's very much possible, although we have not seen much of a mix shift year over year between our overnight services in our daytime services. So if that in fact is going to happen. It hasnt happened yet in a big way.
We'll keep an eye on that during Q2.
With regards to the LTV.
Issues.
We've seen the gains on both the price side as well as the actual usage side, so the bookings per customer.
We are also seeing the pre COVID-19 cohorts kind of return to normal even though COVID-19 has not gone that gives us I would say increasing confidence.
That the steadiness of those cohorts.
Returning to the clockwork like predictability, we saw pre pandemic, although we're not ready to say that for sure yet.
So it gives us optimism on that I think historically, if you looked at what we have in our investor presentation.
We look at just a five year period for LTV to CAC ratios.
Typically we want to target something in the five to seven range or five to one seven to one range with that.
So we feel like everything we're seeing is consistent with our long term operating principles.
Great. Thanks for the color.
One moment for our next question.
Our next question comes from Maria <unk> with Canaccord. Your line is open.
Great. Thanks for taking my questions first and you touched on this a little bit but could you maybe share a little bit more color on what you're seeing in terms of the macro environment and its impact on demand.
Q what was initially contemplated in your full year guidance.
It sounds like things are improving so maybe you could unpack a little bit sort of some of the specific customer behavioral changes that you've seen and then I have a quick follow up.
I'm Maria good to hear your voice.
With regards to kind of what we're seeing versus the plan I would say, we generally have seen.
The actual be pretty darn close to what we thought was going to happen in the year, including some relative softness in the baseline category demand on a year over year basis.
And that seems to be relatively backed up with some of the other travel related companies as well as the TSA data and other third party sources.
So there had been some surprises.
On the operational side being a little bit more efficient there've been some positive surprises.
Prior to Covid cohorts, we've seen some better returns out of.
Our product team than we had to kind of forecast at this point in the year, but the overall demand environment is pretty similar to what we model.
Great and then secondly, how should we think about sort of the cadence of new product features and offerings coming to the platform over the next two years and you've talked about sort of enabling them with seamless booking experience and improving trust and safety on the platform is there any additional color you may be can share around those efforts.
Sure I'd say.
We expect our product enhancements or releases to role frequently like every couple of weeks every month. Some of those may be barely noticeable to customers except in certain use cases, and then we would expect to have some <unk>.
Bigger bets are often in the forms of limited tests in certain geographies or.
We can drive returns via our product investments in our core business for quite a while.
I think we were bothered by the tough decisions, we had to make on the size of our product team during the pandemic and our view was that the work wasn't down in terms of just optimizing the core business. So there is room to run.
Maria This is Brent.
Wanted to add.
Jumping on top of that.
We both on the usability side on the matching side on the additional investments to continue to drive more trust in the platform and the perception of the trustworthiness of the platform. We still don't feel like we're that far along we feel like there is quite a bit of <unk>.
Quite a bit of.
The investment that we could make that.
We will be financial.
Contributing to the business and that we can keep doing that for a while.
Got it that's very helpful. Thank you both very much.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
Our next question comes from Andrew Boone with JMP Securities. Your line is open.
Give us an update more broadly in terms of what youre seeing and any anything you want to highlight in terms of product or geographic.
Areas that are that are outperforming thanks, so much.
Hey, Andrew it's Brad Thanks for being on the call.
Yes, we're pretty pleased with marketing thus far in our general hope is that we can continue to expanding our activities.
The thing that we're most excited about is we've gotten to a place, particularly with our with our upper funnel channels the video.
The things that we're doing that are not that are not search related that we feel like we can get continue running those.
Even with a little degradation in our little sluggishness in the in the category of demand, which is not not necessarily how we felt in years past that has been bolstered by.
Product wins that have helped us on the unit unit economics front, and we hope to continue doing that.
Now obviously there are.
Things that could happen in the economy that would make particularly some of our <unk> spend less practical but in general our plan is to keep doing that and to keep expanding it it's worth reminding you.
That.
We run we do not run any media for pure awareness purposes, we hold everything we run two new customer.
Marginal CAC limits.
Cost of customer acquisition.
So to the extent that we're running it we feel like we have a demonstrable way.
The business to demonstrate why that's a good decision on those terms.
Andrew This is Aaron.
With regards to internationally, we did say that there is a lot of strength.
<unk> grew 68% year over year.
And that's taken into account.
Exchange rate fluctuations.
But we've also seen sub categories have grown much faster. So for example in Europe . We were relatively late to provide the type of support for caps that we want to and.
Bookings grew 200% year over year in Europe , so really.
Performance at.
Additionally, the thing that we're probably most excited about in international is less show the numbers and more of the underlying dynamics of the marketplace.
We have seen in the past that when we can get to enough scale that the.
<unk> engine and the algorithms that power the marketplace start to make really good decisions on how to surface information to pet parents now we can see ourselves a step up not just in terms of revenue, but the drivers of unit economics, and when that happens, we can actually deploy more capital and drive customer acquisition more.
<unk> with no deterioration in unit economics.
And we're starting to see that in Europe .
So to the degree that <unk> been growing fast thats great to the degree the foundation is even stronger I wish to cement our position and drive.
Share gains in competitive differentiation that feels even better.
Thank you.
One moment for our next question.
Thanks.
Okay.
Our next question comes from Ralph <unk> with William Blair. Your line is open.
Good evening two questions. Please first just on the linearity of cancellations, maybe can you sort of talk about how that trended during the quarter and maybe I guess, perhaps.
Through Q2 to the extent you can comment on that any trend line that you draw there and then I have a follow up.
Okay.
Hey, Ralph it's Charlie with regards to the cancellation rate.
Especially on a year over year basis, we saw a lot of improvement in January as we were lapping omicron.
And the improvement started to decrease a bit throughout the rest of the quarter.
What does that mean from a linearity standpoint, it means as we exited the quarter at 11, 6%, we were roughly that all quarter long.
With regards to Q2, it's pretty early with regards to the booking dynamic within Q2 itself a lot of the bookings start to get built up towards the end of quarter stays starts. So so far trend is holding.
But too soon to call, how it's going to land.
Great and maybe just on a previous comment or question on Europe .
Sort of made some comments that once you get the scale the underlying engine really kicks in you could deploy capital.
Strong unit economics or are you at that scale point, yet just any color sort of a sense of where you are and how quickly you could capital.
That increasing rate into Europe . Thank you.
Sure.
Our scale it depends on market. So Germany is still very nascent U K and Canada is a little bit more developed we've seen really good growth in UK, France, Spain, and Germany, even though it's off a really small base.
We see typically a more gradual evolution and the unit economics. So people are more likely to contact service providers people are more likely to book service providers when they contact and people are more likely to come back.
And those things kind of they can drift up in tandem it's really good because they are basically all multiplicative.
But I would say I don't think we feel like any of them have reached full maturity yet in our European markets. So we think theres more room to run there, but the fact that the trends look so good.
Makes us really happy.
Yes.
Okay. That's helpful. Thank you.
Sure.
One moment for our next question.
Our next question comes from Laurent <unk> with Morgan Stanley . Your line is open.
Great.
Follow up on borrowing cost.
The last quarter call at <unk> Com.
Probably that you thought you Russell.
Okay.
Let me close my bottom anywhere around on some calls with any update there.
I'm posting our strategy, maybe put out a little bit better.
Hey, Lauren it's Brad it's good to hear you.
So listen we are continuing to test not a lot to update.
We are increasing.
<unk> our conviction that there is price elasticity, we are not sure that the marketplaces worse off from a revenue standpoint, as a result of slightly lower units were not sure that the.
The trade between higher price and lower units as a bad one the more complicated thing that we're trying to test is to figure out in a world, where we do not set the price for <unk>.
Providers, how to how to go out and.
Leverage that insight to make make a better trade off if there is one to make but we do not have an update around results that we feel good about.
Okay.
Okay.
And I'm not showing any further questions at this time I'd like to turn the call back over to Aaron easterly for any closing remarks.
Well. Thank you all for listening to Rovers Q1 earnings call. We appreciate your ongoing interest in the business and we're excited to share more about how the year unfolds in the next quarter. Thanks again.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
[music].
Okay.
Great.
Okay.