Q3 2023 Vacasa Inc Earnings Call
Thank you for standing by my name is Greg and I will be your conference operator today.
At this time I would like to welcome everyone to the costs of third quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question simply press Star one again.
Thank you so much I would like to now turn the call over to Jay <unk>, Vice President Investor Relations and with that Jay you have the floor.
Good afternoon, everyone and thank you for joining us today for <unk> third quarter 2023 earnings call I'm.
I'm pleased to be joined today by CEO, Rob Graber and CFO Bruce human.
Before we begin let me cover a few administrative details. This call contains information that speaks only as of today's date, we have posted a shareholder letter on the Investor Relations section of our website at investors <unk> Mcarthur dot com that will be referenced by our speakers.
Comments made during this conference call and in our shareholder letter contain forward looking statements.
Such statements include those about future expectations beliefs plans projections strategies target estimates objective events conditions and financial performance, including guidance for future period results, which are based on what the company believes is realizable as of today's date.
We caution you that various factors could cause actual results to differ materially from those anticipated.
For additional information concerning these risks and uncertainties. Please read the forward looking statements section in the shareholder letter, we issued earlier today and the forward looking statements and risk factors section in our filings with the Securities and Exchange Commission.
During this call we will focus primarily on various non-GAAP financial measures information.
Regarding our non-GAAP financial results, including a reconciliation of non-GAAP results to the most directly comparable GAAP financial measures may be 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 I would like to hand, the call over to Rob Graber Rob.
Good afternoon, everyone and thank you for joining us I'm pleased to be with you all today to show the progress the business has made during the third quarter and to review our financial results and outlook.
We wrapped up the third quarter, because seasonally strongest facilitating over 500000 reservations with the majority of those taking place in July and August the second two months of our three months peak season.
Over half a million family trips weekend, getaways overdue brakes, and highly anticipated summer vacations for our team for our industry, bringing vacations home means creating moments for family and friends moments that happen at kitchen counters or around coffee tables and over board games and in that way moments that are unique.
To the vacation rentals category, and so important to our homeowners and guests.
We are still navigating a dynamic macroeconomic and industry environment demand for our category in leisure markets looks different today than during the highs of 2021, and 2022 and while reservation volume remains robust many homeowners across the industry are now making less from their homes than in those prior years, while these <unk>.
<unk> had challenged our business in recent periods, notably in revenue and homeowners retention, we remain highly focused on delivering for our homeowners and guests and once again, we generated millions in income for our homeowners during the third quarter.
I remain extremely optimistic about the cost has potential and continue to believe we are by far the best option for homeowners, who want to participate in the vacation rental industry. Our scale also uniquely positions with costa to develop technology driven products that results in a truly differentiated experience for our homeowners and our guests.
Our working better and more efficiently in all our functions and you can see that in our results. We believe in the vast majority of our markets based on our data the cost of listings are generating more revenue than the industry.
Last November when I spoke with you all for the first time I outlined four critical priorities I wanted to tackle during my first year at the cost of these were improving execution in local markets and customer support functions unlocking the potential of the individual sales approach developing the right technology products and service offerings and.
Ruthlessly prioritizing our business needs to drive profitable execution, let me be clear there is more to do and more that will get done, but as we look back over the past 12 months, we have made significant progress against each priority.
I am proud of how our local teams performed across our markets during our third and busiest quarter.
They delivered outstanding hospitality experiences to our guests while also leveraging some of our latest technology tools to increase efficiency.
For example.
Earlier this year, we told you about new capabilities in the automated scheduling systems used by our field operations teams. These capabilities help our teams better manage daily tasks, including ensuring homes are in top condition ready to welcome guests. These features are particularly helpful. During peak season, when home utilization is high and there may only be.
Small window between guest stays and it's imperative that we have a well planned schedule for our local teams. These systems help our local teams get to arc homes at the right time with the right work planned ready to be completed on time and its working.
During the third quarter, we achieved a higher property condition score every single week compared to last year based on guest feedback while operating in a more efficient manner.
In the spring, we also refined the number of internal processes around housekeeping, including sharing post clean photos from our clean inspection tool with owners. This had two important benefits first our clean scores from guests have been higher year over year in the third quarter second homeowners see real time images of their home. After every inspection that gives them the.
Peace of mind that their home is being taken care of and we've received positive homeowner feedback on this feature it's just another touch point that keeps them connected to their home and allows them to see the work our field teams do.
The positive results from our automated scheduling tool and enhanced photo inspection process are important proof points that our investment in differentiated technology is paying dividends, it's driving efficiency in our operations and more importantly, it's resulting in a better experience for homeowners and guests over time. These products will only get better with 500000.
<unk> you have 500000, new opportunities to identify areas of improvement.
Our individual sales approach the primary way in which we add homes to our platform had another quarter of improving productivity year over year and another quarter of developing and building on the local market presence and expertise that attracts our prospective homeowners.
We continue to refine the way, we attract homeowners shifting more of our resources to local channels and initiatives. This supports our locally based sales and operating teams, allowing them to participate in community events and lets us sponsor unique local activities. We had a blast at the last annual Falmouth Road Festival on the Massachusetts Coast and the Gulf.
Chen Festival in Panama City Beach, Florida.
We're also giving potential homeowners more reasons to choose for Casa over our local peers. For example, the cost was selected as a launch partner for the new offering from American Express travel select homes and retreats.
Channel that positions us to reach more premium travelers, our scale and commitment to quality positions us to provide these types of opportunities for homeowners to reach more travelers across an expanding channel mix.
With all that said the short term rental industry continues to adjust to the dynamic macroeconomic environment and changing travel patterns and we see the impacts of this in elevated levels of homeowner churn homeowners are responding to recent market conditions evaluating if they should continue to rent out their home and if so on what terms we remain key.
Mainly focused on continuing to proactively communicate with homeowners optimizing the rental income and delivering exceptional hospitality to guests our product and technology teams continue to focus on building products that deliver a one two punch, making the <unk> operations more efficient and improving the experience for homeowners and guests we do.
This by feature enhancements to existing products as well as by focusing our efforts on larger scale products that have this double benefit these.
These include the improved photo inspection tool an automated scheduling tool I, just mentioned, which are generated measurable cost efficiencies and positive owner feedback.
We are also rigorously evaluating and taking steps to improve our internal technology infrastructure. Examples include adding additional filtering criteria to the cost of dot com to help guests find the perfect home, making it easier for guests to provide feedback on their stay and in the field simplifying the way they transact with owners and vendors.
Finally, we continue to prioritize driving efficiency across our business. We are carefully managing our operating expenses with technology development sales and marketing and general and administrative expenses down year over year.
We are also being judicious about the homes, we manage on our platform seeking to ensure all homes are the right fit across a variety of criteria, including homeowner objectives rental income potential the location of homes within a market and revenue potential for the concept. We will continue to regularly assess the quality fit and mix of our inventory of homes.
In closing, we remain focused on making improvements across our business from the way, we manage local operations to ruthlessly prioritizing our technology and product resources to the highest ROI. There is more to do but I believe as you look back over the past 12 months Youll see we have made substantial progress I want to take a moment to thank all our <unk>.
Members across the country across all functions for each playing an important role in continuing to improve our product offering and furthering our lead as the top vacation rental management platform in North America.
Now I will turn the call over to Bruce to discuss our third quarter results and provide an updated outlook Bruce.
Thanks, Rob.
First I'll review, our third quarter financial results, then I'll provide an updated outlook.
Unless noted otherwise I will be comparing our third quarter results to the third 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 third quarter gross booking value, which is the combination of night sold and gross booking value per night sold was $830 million down 14% year over year.
<unk> sold were $2 million in the third quarter down 1% year over year and gross booking value per night sold was $406 in the third quarter down 14% year over year.
<unk> sold per home on our platform was roughly flat year over year.
We've discussed the decline in average gross booking value per home year over year as the industry continues to come off of the record highs from the past few years and we saw this trend continue in the third quarter.
Remember also there's a strong relationship between night sold in gross booking value per night sold and it's difficult to look at either in isolation.
Our revenue management algorithms and data team constantly evaluate the trade off between price and occupancy and the mix of nights sold and gross bookings 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 home care solutions provided directly to our homeowners was $379 million in the third quarter down 8% year over year.
Now turning to our expenses.
Cost of revenue was 40% of revenue in the third quarter versus 42% of revenue in the same period last year.
Operations and support expense was 17% of revenue in the third quarter versus 18% of revenue in the same period last year.
These two expense lines, primarily consists of our local market and customer support costs.
Our third quarter results are the strongest example, yet of the progress we are making in operating our local markets in a more efficient manner.
We decreased cost of revenue by 13% year over year in operations and support expense by 15% year over year, while supporting roughly the same number of homes in nights sold and delivering better guest satisfaction results.
We are also demonstrating operating discipline and our central operations, where we achieved year over year leverage across our three other operating expense lines in the third quarter.
Specifically on a year over year basis technology and development expense was down 11% sales.
Sales and marketing expense declined, 23% and general and administrative expenses declined 33%.
Adjusted EBITDA was $74 million for the third quarter compared to $46 million in the same period last year.
Now turning to the outlook.
With peak season, now complete we are raising our outlook for full year 2023.
Based on current business trends and conditions, we now expect 2023 revenue to decline by 7% to 6% year over year.
We also expect adjusted EBITDA of between $5 million and $15 million.
At the midpoint of our guidance. This implies expected 2023 revenue about $75 million lower than last year, but adjusted EBITDA about $35 million higher compared to last year.
While there is more to do I believe our improved outlook for 2023 speaks to the progress the team is making in advancing our operating discipline against a dynamic industry backdrop.
That said, while it's early as we look ahead to 2024, we believe many of the trends we are seeing in the back half of this year, specifically the normalization of traveler demand for domestic non urban vacation rentals from the highs of 2021, and 2022, which impacts our revenue and homeowner retention with <unk>.
We continue.
We remain focused on improving our execution and driving targeted initiatives to support further efficiency gains throughout our business all while adapting to the changing environment.
We will provide you with more color during our fourth quarter and full year 2023 financial results call.
With that Rob and I will take your questions. Operator, please open up the lines.
Okay. Thank you.
And at this time I would like to remind everyone that in order to ask a question Press Star and then the number one on your telephone keypad. Once again star one and we will pause just a moment to compile the Q&A roster.
And our <unk>.
First question today, it looks like it comes from the line of Jed Kelly with Oppenheimer go ahead.
Great great. Thanks, Thanks for taking my questions.
Two if I may.
Once again, you are getting a lot of efficiencies on a lower revenue base. So can you just talk about where that's coming from how sustainable that is heading into next year and then.
Following up on the commentary you just gave.
For 'twenty four you said the trends are likely to continue I think I think industry Revpar is probably down around 13%. This year. So do you think per unit revpar can start to grow in the back half and then just on the churn comment do you think youre, losing.
Homes, two other property managers or is this more of a function of the homeowners doing it themselves.
Yeah.
Yes, Jeff This is Bruce I think the first one I'll touch on your kind of what's driving the EBITDA improvements efficiency improvements really this is primarily a function of our kind of this focus we've had on the local market operations efficiency year over year kind of a central office efficiencies, we've driven year over year, we're just really laser focus.
On those and that's really what's driving kind of this year over year improvement in EBITDA.
I think your question on 24.
Think about.
How that plays into next year I think.
We're focused on it's early in the booking cycle first of all kind of bookings on the books for 24, it's very early but as we look ahead, while we are still in the early planning phase.
As we think about some of the.
Trends that you see in the second half of 'twenty three things like.
The decline in homeowner income some of the churn dynamics, we've seen we think those likely could continue. So we are focused on improving that as we were also seeing some changing booking patterns like for Q4. For example length of stay is coming in a bit lower so we're really keeping an eye on that and how that evolves. So it's pretty early to provide further color there.
We're just focused on taking care of our needs of our owners and guests and really continue to operate the business more efficiently to drive savings and if you look at what we have delivered in Q3 I think that's kind of the vessels results example, but we can drive in that area.
Thanks, and then just on a follow up you did mentioned some of your technology progress I think last week or a couple of weeks ago was the.
Largest industry event I mean, there was a pretty full vendor hall. So can you just talk about sort of where you are winning on the technology front versus say the smaller property manager that can take a third party technology.
Sort of.
Do distribution and do rate management as well thanks.
Yes.
Jeff This is Rob good to talk with you I think.
First of all I think I think there's a couple of different dimensions, where we see advantage and we continue to invest behind it.
First when it comes to how we think about revenue management. There are a number of different tools out there we look very closely at.
How those different platforms are performing versus what we're able to drive in the market and for our owners and we think that we're performing very favorably against those against those other platforms in how those teams are deploying them and that should be intuitive right. There are powerful technologies out there, but we have the biggest platform.
We can see how dynamics evolve across a larger spectrum of markets and.
And we also have the ability to control that technology into tune. It over time. So we think that the market bears that out now where obviously we want to do that for every owner for every home in every market and we want to try to make that as few as possible, but I think when you zoom back.
If the process executed well there and we're going to continue to invest to keep that advantage over the long term I think there's also a number of great technology platforms that are out there in the market, but again it comes down to what type of integrated experience can those operators deliver or having to try to knit together. These various scenes versus what we're able to drive in.
What we're starting to really drive to optimize now the home visit optimization is one example of that in a peak season.
You don't just need to be able to get a booking and then to try to turn a clean.
Let's see maintenance during during during a very busy season and being able to get the right teams with the right work scheduled in the right pieces in place to be able to take care of the home and then turning quickly those are the things that are more integrated platform can provide and those are some of the those are two examples where I think that we have that advantage.
So those are the areas, where we're focused we think you see the impact of them in the numbers that we deliver all of that is against the tough industry backdrop, but we think that is.
Going to be a source of advantage for us and a long term.
And in lots of different economic seasons.
Thank you.
Yes.
Great. Thanks, Jeff and our next question comes from the line of Doug Anmuth with Jpmorgan, Doug go ahead.
Hey, just to stay on for Doug. Thanks for taking my questions I have two so the first one on the homeowner churn.
Well I think last quarter, you guys had talked about it being stable.
Steve I was just wondering given your comment this quarter, if there's any changes that youre seeing in the homeowner churn.
And then secondly.
Your comments about some of the current trends continuing into clinical on the floor.
So let me look now is this the case.
<unk>.
Normalization is still happening and that you're expecting just to get a little bit worse before it improves or is this just more things are stable.
Thanks, a lot.
I guess lower base, you guys to grow off of.
Okay, then the clarification around that thank you, yes, but why don't I why don't I start and then I'll hand, it over to Bruce to sort of add some thoughts.
On churn as we called out we begun to see some higher levels of churn as we move through the fourth quarter last year and I think that coincided with changes in the slowing of booking growth some changes in the demand.
And the demand environment, and we began to see owners, citing homeowner revenue as a as a reason for for churn as they were frustrated by by bookings coming off the record high as the industry experienced in 2021 and 2022. So we've been continuing to kind of take the steps to set those expectations.
Listen to what they want to see play out in the marketplace and do our best to manifest that and make it happen.
Against an industry backdrop that.
But I think.
<unk> is continuing to translate into lower rental income in 2023. So we've been very responsive from a revenue management perspective from a product perspective.
And we think that we are delivering above average performance on a per listing basis, but it continues to be against a tough backdrop. So we think this is a dynamic that others are dealing with.
We think that there's not a lot of great data out there about that but we're watching it very closely and we think that this is something that the industry is going to wrestle with and Thats and thats to be expected. When you when you kind of come off come off some pretty pretty high levels. As we look forward to next year again, we haven't said, we haven't kind of set our plan or set guidance too that we're going to be we're going to be watched.
From those trends.
Continuing to be focused on delivering our business that is more nimble and able to execute well on the top line and the bottom line.
And in any season that we see evolving in the market.
Yes, I think thats, a good run, but only thing I would add again, our focus on efficiency you look at what we delivered in the third quarter. We grew EBITDA by nearly $30 million. Despite nearly a $35 million decline in revenue that focus on efficiency will continue into 'twenty four even at some of these trends like you noted do you continue to mature.
Realized will be watching that very carefully.
Understood. Thank you.
Yeah.
Great. Thanks, Doug.
And our next question comes from the line of Ben Miller with Goldman Sachs. Then go ahead.
Thanks for taking the questions.
Wondering if there's any color you can share on what profitability or margins look like in some of your more mature markets or markets, where you think youre closer to optimizing the cost structure with some of the operational changes and recent product initiative Rollouts and then the second would just be any thoughts on the Google vacation rentals price comparison product and impact this might have on the industry.
Thanks.
And Bruce you want to take the first one and I'll take the first one we haven't really.
Indicated any per market profitability metrics in the past, we really look at every single market trying to optimize our contribution margin. So we've not really.
Yes indicated our per market breakdown at this time.
Yes, and I think that we do see markets that are more mature and less mature by and large what we're doing is executing a.
A set of product and business initiatives that have actually seen good results across all of those markets. So.
We're pleased on that progress we haven't provided that exposure.
Look when it comes to the channel structure, I think theres been a lot of different types of.
Investments and changes that have happened over.
Over the last decade, when it comes to the maturing the vacation rental category. We've seen we've seen a lot of investment on the OTT side, a lot of investment on the meta search side.
A lot of investment I think as Jed called out earlier on platforms that have come into the market to better manage across channels.
We'll look at it we would evaluate those pretty critically when it comes to our channel participation, we believe that having a diverse.
Bruce Channel mix is a great source of.
<unk> strength for us as a company.
I'm not going to comment on a particular investments that the different players are making generally speaking having good partners on the agency side has been very helpful. Meta search has been more of a mixed bag.
As an industry, but we will keep an eye on and.
We'll be watching how it evolves.
Okay. Thank you.
Ladies and gentlemen, again, if you'd like to ask a question star one on your Touchtone phone once again star one on your telephone keypad and the next question comes from Nick Jones with JMP Securities. Nick Go ahead.
Hi, This is Luke on for Nick just taking a step back the topline year over year declines accelerated three Q. So I guess on a more broader level. What do you think are the main one or two factors and focus when it comes to re accelerating that top line heading into next year. Thanks.
Yes. Thanks for the question really appreciate it so look when I when I first spoke with with this group in November.
I shared how excited I was about the cost of long term potential about what I see is a terrific category in the market.
Really one of the last categories in the travel industry to undergo the type of transformation and growth that I think it's been.
Demonstrated over the last several years and I think is still ahead of the industry by and large but when I joined the <unk> team I have been seeking out and been very tried to be very forthright about acknowledging areas, where I see opportunities for improvement I think we're making the changes that we need to make as an organization I am not satisfied our keen as satisfied.
We've demonstrated good progress.
On an absolute basis and also how we're able to execute in a challenging dynamics. So when I think about the long term look I think about really the opportunity to build <unk>.
That form based business that can on an iterative basis deals and continue to improve on superior guest experiences superior owner experiences and we've seen businesses like that transformed so many other categories across travel and across the broader economy and I think that there is that opportunity I think it exists here and it's ours for the taking.
I think when I think about the short term they are really the two things that I'm focused on that have driven the results that you can see so far first is around how we think about revenue management and again. This is against the difficult market backdrop. This year, but you can see the progress that we've made in our in our financial performance. Despite declines in revenue we're seeing those <unk>.
<unk> on the revenue management side to help navigate a difficult environment, we think better better than others and I think then the second piece of that is investing in technology product business processes and the people to really deliver better experiences for guests and owners every single day highlighted a few of those things on the technology side, when I think about our ability to optum.
<unk> home visits to make sure that we can get the right people in the right place at the right time to get the work done that you needed to take care of our owners homes and to have our guests enjoy their time away and their holidays. We think that's absolutely critical and we're also doing a lot of work in other elements of our platform to improve persistence and our guests and owners interact with.
Just give me more visibility into the status of their homes the progress that we're making on maintenance items and so forth. So on the process side Theres a lot of work that we've gotten done on the technology side. There's a lot of work we've gotten done we've been very judicious I think in how we're allocating capital and making sure we're being efficient with our workforce and wherever.
<unk>. So I think all of those things to me say that we're going to be able to build the business for the long term you can see the beginning of that impacts flow into our business results and we're going to be looking for where we see that really getting traction and try to allocate capital there more aggressively so theres a lot more for us to do were pretty keenly focused on execution and efficiency.
And we think that that is also going to point us in the right direction on better customer experiences for the Walter.
Okay. Thanks Luke.
And our next question comes from the line of Bernie Mcternan with Needham <unk> company for any go ahead.
Hi, This is stefanos crist, calling in for Bernie Thanks for taking our questions.
Just curious on the type of visibility you have at this point for the quarter, especially with last minute holiday trips being booked.
Just what do you typically see in Q4.
Yes, so Q4 I mean.
As we get into the quarter, it's still a little bit early I think the only thing I would notice I talked about earlier.
Evaluating that as we head into 'twenty, four and Rob said, it well not a lot we can guide on that yet.
Okay.
Okay, great. Thank you very much.
Thanks, Jeff.
One final reminder, again, if you'd like to ask a question star one on your telephone keypad once again star one and our next question comes from Justin Patterson at Keybanc doesn't go ahead.
Great. Thank you very much and good luck and I wanted to revisit Geoff Johns question from earlier.
You've done the hard part you've gotten to.
Higher EBITDA year over year on a lower revenue base.
We think about just the business scaling up from here, how should we think about incremental margins versus.
What we used to look at this business in the past. Thank you.
Yes.
I'll start on this one and then I'll ask <unk> to comment as well.
I appreciate I appreciate the question Justin I think we don't think of ourselves as being done.
But we are pleased with the progress we've seen the team make.
So far so far this year Theres a lot more for us to do I think that we believe that there is an opportunity like we've seen play out in so many other businesses and categories.
Were you to deliver better customer experiences by delivering more efficient experiences and think about an Amazon delivery experience thinking about the experiences that so many of these platforms can and can deliver as they integrate and then iterate and improve over time, we think that that path to being more efficient.
Paves the way along the way towards really differentiated customer experiences and that's what we're building how that translates into short term and long term financial results.
We're pleased with what we're seeing so far but there is a lot more for us to do along those lines, we're not yet making comment to what.
What we see evolving and how that.
Typical balanced out in 2024.
We think that that that same discipline on the financial side is actually would translate into really differentiated experiences for guests for our owners and the ability for us to continue to improve those things improve those things over time.
Yes, I think a proof point I would highlight is in Q3, we drove a double digit decline in our local market operations cost. We supported the same number of nights. The same number roughly at homes on our platform and we didn't do that by sacrificing guest demand.
Customer satisfaction scores I was just kind of tells you what's possible when you really focus on this we're going to continue on that trend, we're going to continue injecting technology into our local market offs get better and better and that's what we're going to be focused on for 'twenty four.
Thank you.
Yes.
Okay.
And with that I will now turn the call back over to CEO, Rob <unk> for closing remarks, Rob the floor is yours.
Thanks, very much I wanted to say again, thank you for everyone for joining for the questions today I want to thank our homeowners for their partnership with Acosta and I want to thank everyone, who works at the cost that we're working so hard every day to bring vacations home for our owners and our guests. Thanks, everyone look forward to speaking with you and updating you on the full year and our outlook for 'twenty four.
The coming months.
And ladies and gentlemen that does conclude today's.