Q2 2023 Vacasa Inc Earnings Call

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Please step I'd worry about to begin.

Good afternoon, ladies and gentlemen, welcome to the the cost of the second quarter of 2023 earnings call.

All sorts of <unk> or any listen only mode and please be advised that this call is being recorded.

After the speakers prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time.

Star one on your telephone keypad.

And if you do like to withdraw your question Press Star one again.

Time, I would like to turn the call over to Mister Ryan domestic of Investor Relations. Please go ahead. Good afternoon, everyone and thanks for joining us today. So the cost of the second quarter of 2023 earnings call.

He used to be joined today by CEO rock labor and CSO British humor.

Before we begin let me cover a few administrative details.

This call contained information that speaks only as of the date of today's live broadcast.

Redistribution of this broadcast is prohibited.

We have posted a shareholder letter on the I R section of our website that investors at <unk> dot com that will be referenced by our speakers.

Congress made during this conference call and in our shareholder letter may contain statements that are commonly referred to as forward looking statements.

Such statements include those about future expectations beliefs planes objection targets estimates objective events conditions and financial performance.

We caution that various factors creek cause actual results to differ from those anticipated.

For additional information concerning these risks and uncertainties. Please read the forward looking statements section and a shareholder letter we issued earlier today and the forward looking statements and risk factors section and or filings with the SEC.

During this call we will discuss certain non-GAAP financial measures.

Information regarding our non-GAAP financial results, including a reconciliation non-GAAP results.

Directly comparable GAAP financial measures may be found in our shareholder letter.

These non-GAAP measures should be considered an addition to our GAAP results are not intended to be a substitute for GAAP results.

And now I'd like to hand to call over to Rob <unk> Rob.

Good afternoon, everyone and thank you for joining us I'm pleased to be with you all today to provide an update on the progress we've made during the second quarter to review our financial results.

Sharon outlook for the business.

I'd like to start by welcoming <unk>, our new CFO to the concept Bruce joined the concert in June and in just two short months is already ingrained in the business and has become a valued member of our leadership team.

Bruce Springs, nearly 30 years of experience of Acosta, including more than 25 years of Intel before serving of CFO one of the nation's largest technology driven real estate lenders Bruce. Thank you for all your contributions to date and I look forward to working with you in the years to come now onto our updates for the business.

We are in the midst of our summer peak season with the three month period from June through August , which represents with our busiest time of the year. During these months, we will facilitate more than 500000 reservations and on some weekends, we will manage over 30000 reservations more than other industry operators manage in a year a reminder.

Of the size and scale of the cost of today and the incredible dedication of our team.

A quick word on the attention our industry has received in the national and local press and unsettle media in recent months with articles discussing market dynamics, such as demand returning to urban and international destinations an uptick in hybrid in an office work and most significantly increased patient vacation rentals supply, we spotted and highlighted these trim.

Starting in the fall of last year.

<unk> scale and data driven approach, we were able to adjust our revenue management stamps to address these shifts based on our data. We believe in the vast majority of our markets a cost of listings are generating more revenue than the industry.

2023 has been a more challenging environment for vacation rentals relative to the record levels reached last year. We are primarily seeing lower gross looking value per night or price while night sold per average home. During peak season is tracking roughly in line with last year. As a result, our teams are busier than ever welcoming guests for their.

Summer vacations.

Shortly focused on execution and are seeing some early benefits as we work against the priorities set and the changes we made starting last year I'm pleased with our progress in operations and I'm proud of the guest service levels geared delivering during our seasonally busiest summer months I want to recognize the dedication and hard work of all the conflict colleagues in the <unk>.

Fields.

When I spoke with you all for the first time back in November I outline the tremendous opportunity bokassa has in front of it.

<unk> address as a large dynamic market with a hard problem, that's best solved with technology and with competitors, who have thus far not built the foundation to use technology and data to learn and improve.

As I shared when I first joined the concert to reach our potential in this market we needed to sharpen our focus to perform at our best.

Over the past nine months, we've been adjusting the way, we work, which is never easy, especially in a changing market environment. Nevertheless, our teams have persisted and I'm incredibly proud of all our economy employees for helping make demonstrable progress across all facets of our business.

Throughout 2023, the team and I had been guided by four critical priorities.

Improving execution in local markets and customer support functions unlocking the potential of the individual sales approach developing the right technology product and service offerings and ruthlessly prioritizing our business needs to drive profitable growth.

There is always more to do but we made substantial progress against these goals. We five week wins are stacking up in the results of our efforts are beginning to materialize there have been and will be steps forward and back, but we are gaining real momentum across our entire business and I remain incredibly excited for what's ahead.

We spent the last several quarters, becoming more tactical and the way we operate in our local markets, particularly with regards to aligning staffing levels in a dynamic reservation environment and.

In 2021, and 2022, our teams for staffing in anticipation of stronger and stronger demand now we are more closely collaborating to watch demand and booking intakes and adjusting resources in local markets. Accordingly, we have also rolled out improved purpose still technology tools and integrations for our local teams.

The initial progress you saw in the first quarter from these changes carried into the second quarter as a result during the second quarter, we saw a year over year improvements across our key local market operating metrics, despite a more uncertain demand environment.

And most importantly, we aren't sacrificing service levels, which we also watch very closely to achieve these efficiencies.

Satisfaction for example, among other key metrics is right in line with last year.

On the approach to managing local markets, we're removing layers of management and empowering the owner and guest experienced teams who take care of customers. We also set of processes that drive closer alignment across all the functions. The support these local operations teams with better analytics in real time support from revenue management human resources and finance.

Yes.

We've also brought new technology into key workflows during the first half of the year with the goal of decreasing the cost of managing homes and guests stays while providing owners and guests with an even better experience.

For example, we launched an automated scheduling tool for our field operations teams, providing greater visibility into and making it easier to get through their daily tasks. We released the home care dashboard, which we touched on last quarter that provides homeowners with an unprecedented view into their homes now owners can track maintenance issues.

Line and see reports of recent inspections for example, providing owners with 22 50 photos showing the condition of their home since launch we've shared millions of photos with homeowners.

Also incorporated both SMS and Webchat into our communications tools opening up another communications medium for owners and guests.

These technology tools bring efficiency to our local market operations and more immediacy to communications with homeowners a wind for homeowners of wind for our guests and a wind for the concert.

On the individual sales approach the primary way in which we add homes to our platform. We've been testing in implementing changes that are taking hold.

Guiding principle for retooling the individual's sales approach has been to streamline and simplify how we work some of the changes we have implemented include adjusting the organizational structure. So every sales rep focuses on a single market, allowing them to develop and build the local market expertise that our homeowners craves.

Simplifying the pricing structures, we offer to homeowners rolling out internally developed technology tools to improve the onboarding experience for whom new homeowners and reducing the number and complexity of the incentive plans we manage internally.

And the second half of the year, our focus will continue to be on solidifying the productivity improvements we've made in recent months.

Once we've fully institutionalized these new processes will then consider growing the sales team encouragingly, while still elevated relative to prior years homeowner churn has shredded in the right direction in the second quarter.

Our data continues to indicate that the higher level of churn is primarily due to concerns about levels of homeowners income is the industry comes off to record years, we are making significant efforts to educate our homeowners about the state of the industry, including sharing market level data to underscore that these trends aren't specific to bokassa and though.

Communications had been positively received by homeowners on the technology front, we've completely changed our process of product development, rather than shipping a few significant products. Each year, we are shortening development cycles and pushing to release smaller enhancements more often as a result, we are getting more and better product towards enough.

Dates in front of homeowners guests and colleagues faster.

These advancements are improving experiences and having a positive meaningful impact on our business. For example earlier I mentioned that we were making it easier for homeowners and guests to communicate with the cost of over S. M. S. If they prefer in the first half of the year, we launched a click to S. M. S feature, giving guess the options to transfer to SMS rather than.

Waiting on hold to speak to an agent.

Guess it resoundingly opted for this feature with estimates inbounds now exceeding phone inbounds. These changes create a better experience for our guests, allowing them to more easily communicate with a constant and get answers to their questions faster, while improving the efficiency of our customer service representatives.

He was also exploring how new artificial intelligence tools can be used in our workflow. For example, we are now using a tool to analyze lifting photos of the homes, we manage to ensure homes are tagged with all the relevant amenities.

To date, we have analyzed more than $2.5 million listing images to expand on attribute like pools kitchens, patios and more as well as provide us with image quality scores. The goal is for these insights to help improve the guests booking experience by serving up the most relevant homes for any query or filter and dry.

Reservation conversion.

Finally, we continue to prioritize our business needs to drive profitable growth, we are carefully managing our operating expenses with technology and development sales and marketing in general and administrative expenses down year over year, we're finding our focus on operating discipline in product development is starting to deliver results for <unk>.

And is driving a better experience for homeowners and yes, even though we have a lot more to do I've seen this dynamic play out many times in my career and I'm excited about the path ahead.

Before I turn it over to Bruce I'd, just like to say, thank you to our thousands of dedicated employees, who are working so hard this summer peak season and throughout the year to bring vacations home for our homeowners and guess.

Bruce.

Thanks, Rob.

First I'll review, our second quarter financial results, then I'll provide an updated outlook for 2023.

Unless noted otherwise I will be comparing our second quarter results the second quarter of 2022.

And I'll be referencing the operating expense lines, excluding the impact of stock based compensation restructuring costs and business combination costs, which you can find outlined in our shareholder letter.

For the second quarter gross booking value, which is a combination of night sold and gross looking value per night sold reached $622 million down 8% year over year.

Ninth soldier, one $7 million in the second quarter of 3% year over year.

However, gross looking value per night souls was $368 in the second quarter down 10% year over year.

Over the past few quarters, we've talked about the decline an average gross looking value per home as the industry normalizes off of the record highs from the past few years.

This dynamic continued in the second quarter with a 10% year over year decline in gross booking value per night souls, while average night sold for home on our platform was roughly flat year over year.

Remember also there is a strong relationship between night sold and gross looking value per night sold and it's difficult to look at either in isolation.

Our revenue management algorithms and team are constantly evaluating the tradeoff between price and occupancy in the mix of night sold and gross looking value per night sold with the goal of optimizing homeowner income.

Revenue, which consists primarily of our commission on the rents we generate for homeowners the fees, we collect from guests and revenue from homecare solutions provided directly to our homeowners was $305 million in the second quarter down 2% year over year now turning to our expenses.

Cost of revenue was 47% of revenue in the second quarter versus 49% of revenue in the same period last year.

Operations and support expense was 20% of revenue in the second quarter versus 19% of revenue in the same period last year.

These two expense lines, primarily consists of our local market and customer support costs as.

As Rob alluded to we continue to make improvements in the way we manage our local market operations. We're also demonstrating operating discipline in our central operations, where we achieved year over year leverage across our three other operating expense lines in the second quarter.

Specifically on a year over year basis.

Technology and development expenses flat.

Sales and marketing expense declined 9%.

In general and administrative expenses declined 47%, though they're worse than nonrecurring expenses last year.

Adjusted EBITDA was $16 million for the second quarter compared to a 2 million dollar loss in the same period last year.

The 19 million dollar a year over year improvement despite a 3% increase in night sold and a 2% decrease in revenue demonstrates the progress all of our teams are making an operating the business with increased discipline.

Now turning to the outlook as.

As we indicated in March we're not issuing explicit quarterly guidance given we are still adjusting to the changing booking patterns as the industry comes off of two record years.

While the business is operating with more discipline and making our costs more predictable we are continuing to experience variability in booking patterns, especially on the close in part of the book incur.

That said given we are willing to peak, we believe that we will land at the higher end of our initial full year 2023 revenue growth guidance range and now expects 2023 revenue to declined by a high single digit percentage year over year.

For full year adjusted EBITDA, you can see we are making progress in operating more efficiently and we believe we will achieve slight adjusted EBITDA profitability in 2023.

With that Robin I will take your questions operator, please open up the lines.

Thank you Mister Chairman, ladies and gentlemen at this time, if you do have any questions of the press Star One and just a reminder, if you do find your question has already been addressed. This afternoon, you can remove yourself from the queue across each star one again.

Our first question today from Doug <unk> at J P. Morgan.

Hello This is the.

Thanks for taking the questions I have to the first one is around.

Well I'm not going to talk about market dynamics in it.

Ah remarks about pronounce turn it to her valley national Okay can.

And then also sparked etc, but based on what you guys see how far along are you thinking industry is facing the.

He shifts.

Haven't seen the peak.

The <unk> will come.

<unk> maybe.

We will send your thoughts on it.

[noise]. Thanks I appreciate the question.

On the on the first piece with respect to the macro environment and and booking patterns and so forth.

I think that by and large what we've seen play out over the last 12 months or so plus or minus has been.

Ah really kind of a return to what is a normal sort of booking pattern off of on some level off of the <unk> that you saw over the past several years in terms of pricing in terms of the patterns that you see I think there's some snapback to international and so forth, there's going to be a little bit of <unk>.

Flushing around in the global travel bucket as things as consumers get used to new flexibility new availability to travel to destinations that might've been closed during COVID-19 and so forth.

And and I think that there's probably still some more to come in terms of.

Different trends geographically for example in North American market I think the east coast is much more back to the office and and some of those normal rhythms and in the West Coast. I think there is probably still a little bit more to go as it touches our business I mean for the most part we see some of those dynamics, but we see it largely play out as you see it.

Playing out now in terms of in terms of what we're seeing an occupancy and into an overall overall pricing environment.

In our business.

And I just didn't catch the second I think that was the first question I didn't catch the second Linda.

The second one was related to that so let them do you anticipate you'll start laughing at the worst of these <unk>.

Changes, meaning that Lynch's your business on the top line accelerated.

Yeah, I think in terms of.

That we're looking at this kind of environment I kind of view it from the lens of kind of normal economic changes in what I've seen in the travel industry and for the most part I think what we're seeing is that a typical sort of reversion to the mean, if you will and it feels like a pretty normal cyclical motion in in the industry.

<unk> and it's.

None of us have a crystal ball I left mine Levine at home today.

But for the most for it. This is this is what you see and we feel comfortable that we can navigate it.

Half of our owners and on behalf of our business.

Understanding thank you.

Thank you.

And we'll take our next question from Nick Jones of JMP Securities.

Great. Thanks for taking my questions.

G BV per night sold.

Downtown percent year over year, how should we be thinking about that for the back half. It seems like maybe typical seasonality here might break down a little bit as we kind of normalized this year and then maybe a question as it relates to GB per nice old does do these G. B V per night sold trends kind of Informa churned levels.

And I guess if so.

Are the kind of technology and sales efforts, helping kind of offset maybe less returns.

Homeowners are seeing as a result of his lower GB per <unk>.

For us to take that first one and he'll jump in yeah. Thanks, Nick.

For the question I would stay on the mix of night sold versus gross booking value per night sold.

Our revenue management team is really always looking at this they have proprietary systems that are looking at industry data. They are looking at daily bookings intakes and.

And conducting a test to really determine the optimal mix of pricing and sell through really to maximize income for for homeowners. So.

Nick right now the revenue management team, they've determined that lowering price maintaining those sell through rates that really is the optimal approach for us and when you look at other travel environment. That's not surprising is typically what happens so.

See this play out in our second quarter results were Knights sold is roughly in line with home growth, while while price or gross booking value per night sold that was down as you know 10% year over year. So to answer your question through the first half you've seen that kind of play out gross booking value per night sold declined with smaller changes a night sold but for the back half of the.

The year, the strategy and kind of the resulting effect on the mix of night sold and gross booking value, that's really going to depend on the demand environments and what we believe is our optimal response to it and.

And then on the second part of the question you will take the Cherilyn, Rob Yeah, absolutely I think that.

First of all let's let's just take a step back with respect to the dynamics with owners, we began to observe as we've shared before system elevated levels of churn in the fourth quarter and Thats continued through the first part of the year that coincided in we we dig into this as much as we possibly can certainly coinciding with some of the changes.

In the economic and the demand environment that we excited before and we certainly see owners when they look to make a change citing homeowner revenue is one of those key reasons is causing frustration for them and I think to some extent that's just coming off of these these highest that we've seen at the same time, we are focused on the things that we can control.

So we are really leaned into this week.

A number of things on the communication side really trying to do a better job of explaining what we are seeing across the industry, what's going on in the industry. What their individual markets are seeing how that translates into the expectations that they should have for 2023.

But we've also been I'd say equally leaning in on the revenue management side. So.

Despite what we see on GB per night sold we are really focused on making sure. We're doing the best job that we possibly can for owners and we think the data shows that it's pretty clear that when you. When you look at industry data we're delivery.

Delivering well on on our ability to drive revenue for owners when we compare ourselves to the market at large so we want to get back to an environment that is.

That is that is going to be growing over the last several years, but I think there's gonna be just a long term cycle, but most importantly for us is to deliver for owners and to make sure that we're managing those expectations and then delivering on the more exceeding them wherever wherever we possibly can.

I would just say that in terms of the dynamic in general what we expect to play out. This is an industry wide phenomenon. So.

The extent that there is some of this frustration we think it's across the industry. You think you see that as evidence of some of what's out what's what's.

Shown up on social media and in the press, but again, we're laser focused on the things that we can control and we're acting on those things and we think that the data showing that we're delivering for hours and that's the most important thing.

Great. Thank you both.

Thank you.

And I'm gonna have to jet Kelly at Oppenheimer.

Hey, great. Thanks, Thanks for taking my question.

Just looking at the EBITDA improvement relative to.

Lower revenue, you're you're really making a lot of 90 sufficiency games can you talk about I know you've talked stomach you're up in your opening remarks, but sort of touch on some of the underlying drivers there and then Rob can you just give us an update on your salesforce productivity.

About the supply ramp and where we are there. Thank you.

Yeah sounds good yeah, I'll take the first part and then Rob on the second part so.

For US jet Q2. This is really a story about operating basics and really the discipline to drive them.

Boiled down to just improved execution for us throughout the entire second quarter I think a couple of examples I would point too I think we did a much better job this quarter and just operating discipline in the field or field teams managing resources much more tightly to kind of variable booking patterns and just doing a better job and execution there I think.

Worked hard secondly to maintain we talked about the workforce reduction in January just maintaining discipline. There. So we see that operating leverage continue to flow through and then I think thirdly, our revenue management team is just really watching this carefully I think as they watch the emerging trends, they're doing a good job on executing just to drive bookings that are very tactic.

The level as they navigate yeah, well, we all know is a very dynamic environment. So it's really an execution story there'll be some steps forward steps back like we've talked about but we're just focused on keeping that progress going across the business.

Yes, Jeff and the second part of the question with respect to the the performance on sales.

Yeah.

As I think about that yet.

I really think about that in the context of what we're doing overall here. So first we have been working to get the unit economics right as Bruce just described we're working on.

Than really focusing on our ability to have a growth motion that is repeatable that is dependable that is process driven and so forth and then improving the product case, you're actually you're asking about that kind of second part of the formula. If you will and their look the sales team had a nice second quarter, we had we had solid.

<unk> productivity, we were pleased to see that we are encouraged by the progress that we've seen over the last couple of months.

The last several months and we think it's a step in the right direction, we're focused on making these things.

Continued and kind of a normal part of what we do so what's driving that progress I think it's a focus on the execution elements of the go to market emotions of the business. So finding the right size for the Salesforce federal lining those teams from a geographic perspective, simplifying key aspects of how they how they work.

And that ranges from the organizational structure to the number of incentive plans that we manage to simplify the pricing that we offer to our homeowners to investing in tools and processes for onboarding, new homeowners onto our platform. So when I look at it I see a great team that is digging in we.

Have a lot more work that we can get done it's encouraging to see some initial progress along that path and looking ahead to focus for the rest of the year remains on maintaining these productivity gains continued to invest on the process side continuing to investments are those standard operating procedures and the growth motions and then as we get into the back half of the year.

Next year, that's when we'll start to potentially explore increasing the size of the sales force.

And then just given me.

Rev. R headwinds the industry is facing I'm sure. Some of the owners that are doing it themselves are facing similar headwind. So are you seeing now more inbound from owners that probably had a good 21.

Are struggling and back have a 22 into twenty-three are you seeing more inbound from some of these owners and fought taken all thought it was easy and 21, but now realizing.

This is pretty hard.

So I would look at is a great question, we haven't shared anything on kind of rates of inbound inquiries and so forth, but if you hear from anybody. Please have them give me a call or seriously we absolutely do expect the dynamic where there is there is going to be a real need for owners to be able to have a partner that can navigate these dynamics with us we think we are.

Very focused on doing that job.

Better and better and better every month and I'm very proud of the work that the team is is done so far this year, it's been a tricky year, a dynamic here and and I think that we've made good progress there will certainly be talking about that with owners will be engaged with them.

Thank you.

And gentlemen, it appears we have no further questions. This afternoon, Mr grape or I'd like to turn things back to you for any closing comments.

<unk>. Thank you very much thanks, everyone for joining really appreciate the questions. Just wanted to say thank you again to all of our teams working so hard in the field. This summer peak season and also thank you to all of our owners for your partnership and and for all of the work. We've done together. Thanks very much we'll talk to you again next quarter.

Thank you Mr paper can ladies and gentlemen that will conclude the cost of the second quarter of 2023 earnings call I'd like to thank you all so much for joining us and wish you all a great remainder of your day Goodbye.

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