Vacasa Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 9, 2023

There are 6 speakers on the call.

Operator

Afternoon, and thank you for standing by. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vicasa First 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.

Operator

If you would like to withdraw your question. Thank you. Ryan Domancic, Investor Relations, you may begin your conference.

Speaker 1

Good afternoon, everyone, and thanks for joining us today for VICASA's Q1 2023 earnings call. I'm pleased to be joined today by CEO, Rob Graber and CFO, Jamie Cohen. Before we begin, let me cover a few administrative details. Call. This call contains information that speaks only as of the date of today's live broadcast and redistribution of this broadcast is prohibited.

Speaker 1

We have posted a shareholder letter on the IR section of our website at investors.pecasa.com that will be referenced by our speakers. Comments made during this conference call and in our shareholder letter may contain statements that are commonly referred to as forward looking statements. Call. Such statements include those about future expectations, beliefs, plans, projections, targets, estimates, objectives, events, conditions and financial performance. Call.

Speaker 1

We caution that various factors could cause actual results to differ from those anticipated. For additional information concerning these risks and Suruentes. Please read the forward looking statements section in the shareholder letter we issued earlier today in the forward looking statements and risk factors section in our filings with the SEC. Call. During this call, we will discuss certain non GAAP financial measures.

Speaker 1

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. Those non GAAP measures should be considered in addition to our GAAP results call and are not intended to be a substitute for our GAAP results. And now, I'd like to hand the call over to Rob Graber. Rob?

Speaker 2

Call. Good afternoon, everyone, and thank you for joining us. I'm pleased to be with you all today to discuss the latest progress we've made at Vacasa and to discuss our Q1 financial results. Since we last spoke in March, our team has been focused on getting the business ready for our peak season, which kicks off in June. Across the organization from local market operations to our central teams, we have been positioning Vacasa to deliver for homeowners and guests during our busiest summer months.

Speaker 2

Over the past several months, I and members of our leadership team have also taken several opportunities to visit local Bokasta markets, meeting with homeowners and colleagues. Quarter. Spending time in these markets and speaking with the teams in the field helps us understand firsthand where we can improve and the opportunities ahead. We've done 3 of these in market visits so far and each time I am truly impressed with our local teams inspired by their commitment to our owners and guests and energized about what's ahead for Vacasa. As I previously shared with you, we are focused on 4 priorities in the year ahead, which include ruthlessly prioritizing our business needs to drive profitable growth, improving execution in local markets and customer support functions, unlocking the potential of the individual sales approach and developing the right technology product and service offerings.

Speaker 2

Call. We believe that executing against these priorities will position us for sustainable long term profitable growth in future years. Call. I am not satisfied yet nor is our team, but we are on the right path and I believe our focus is on the right things. Quarter.

Speaker 2

During the Q1, we made gains on improving the execution in our local markets and customer support functions. Recall, throughout 2022, We were staffing our local markets in anticipation of stronger demand and increasing homes under management. As the traveler demand environment changed in the 3rd and 4th quarters, we did not adjust staffing levels as quickly as we would have liked. We took structural actions during the Q4, beginning with splitting our local operations Teams and National Sales Teams into separate groups, enabling us to have more dedicated senior leadership for each team. We also implemented new processes to better align field staffing with the number of reservations in each period and to share best practices across regions.

Speaker 2

From these learnings, we made further market level headcount adjustments since in January. The combination of these actions resulted in Vacasa exiting the Q1 with staffing levels that better match demand and that contributed to our adjusted EBITDA outperformance during the Q1. I'm cautiously optimistic that we can maintain these improvements and the resulting effects on our cost structure as we approach our seasonally stronger summer months. We continue to refine and optimize how we add homes to our platform to the individual sales approach. On the one hand, encouragingly, March represented our highest per rep productivity over the past year, and I believe there is more progress to be made.

Speaker 2

On the other hand, we continue to experience elevated levels of homeowner churn, which we believe is primarily due to concerns about levels of homeowner income as the industry comes off 2 record years. Call. We are monitoring this closely and the churn rate hasn't increased since we last spoke in March. As we look at the data points from third party firms that cover our industry, call. It's very clear that others are also experiencing declines in bookings and that we are in a very different demand environment than we were a year ago.

Speaker 2

We are actively communicating to our homeowners what we and the broader industry are experiencing in an effort to address their concerns and manage their expectations for the balance of the year. Given our expectations for continued year over year declines in bookings, It's difficult to predict when we expect churn to return back to normalized levels, but we are focused on the issue and taking what we believe are the appropriate steps. The technology team is also executing well against both its near term and long term priorities. We recently launched the home care dashboard, which provides homeowners more detailed insight into how Vacasa is caring for their home. With the tool, we are now conveying much of the behind the scenes work that goes into caring for a home, including when their home was last cleaned, the average clean score by guests, clean inspection checklist and the status of maintenance tickets directly to the owner through the mobile app.

Speaker 2

We believe this tool will provide peace of mind and transparency into the work we do to maintain their properties. We also continue to release new and refine existing field tools to improve their functionality and ease of use and increase the efficiency of local teams as they care for our homes. Call. It's crucial that we leverage our scale to invest in these types of custom integrated product solutions to create enduring competitive advantage. Finally, we announced today that Bruce Schuman will join Vacasa as our Chief Financial Officer effective June 1, succeeding Jamie Cohen, who will be stepping down from that role to pursue new endeavors.

Speaker 2

Bruce joins Vacasa with nearly 30 years of financial leadership experience, including over 25 years at Intel, where his roles included serving as a divisional CFO with P and L responsibilities. I'm excited to welcome Bruce to Vacasa and the executive team next month. Over the past 2 years, Jamie has helped lead Vacasa through some of its more formative milestones, including integrating Turnkey's financial operations and leading Vacasa's business combination with TPG Base Solutions Corporation, which resulted in Vacasa becoming a publicly traded company. I'm extremely grateful for Jamie's lasting contributions to Vacasa. Jamie will remain available to consult with Vacasa until October 1, 2023 to ensure a smooth transition of our responsibilities to Bruce.

Speaker 2

Call. With that, I'll turn the call over to Jamie to review our Q1 results and latest outlook. Jamie? Call.

Speaker 3

Thanks, Rob. First, I'll review our Q1 financial results, where revenue and adjusted EBITDA finished ahead of our guidance. Then I'll spend some time reviewing the latest trends in the business. Unless noted otherwise, I will be comparing our Q1 results to the Q1 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 Q1, gross booking value, which is a combination of nights sold and gross booking value per night sold, reached $521,000,000 up 5% year over year.

Speaker 3

Knights sold were $1,400,000 in the Q1, up 6% year over year, quarter with the increase primarily driven by the addition of new homes to the platform. Gross booking value per night sold reached $3.64 in the first quarter, down 1% year over year and the 1st year over year decline following 11 consecutive quarters of growth. Over the past couple of quarters, we've talked about the reduction in average gross booking value per home as the industry normalizes off of the record highs from the past few years. This trend continues in the Q1 with the year over year growth in average homes in the quarter higher than the growth of nights sold and the year over year decline in gross booking value per night sold. Remember, there is a strong relationship between nights sold and gross booking value per night sold, and difficult to look at either in isolation.

Speaker 3

Our revenue management algorithms and team are constantly evaluating the trade off between price and occupancy to optimize the mix of nights sold and gross booking 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 and the fees we collect from guests, was $257,000,000 in the first quarter, up 4% year over year and above our guidance of $230,000,000 to $240,000,000 As we noted during our Q4 earnings call in March, We continue to experience variability in booking patterns and severe weather in our ski markets, which led us to be more cautious with our Q1 guidance. Now turning to expenses. Cost of revenue was 48% of revenue in the Q1 versus 52% of revenue in the same period last year, when excluding the $15,000,000 benefit from future state credit. Operations and support expense was 23% of revenue in the Q1, consistent with the same period last year, growing 3% year over year.

Speaker 3

You'll recall these two expense lines primarily consist of our local market and customer support costs. Quarter. The favorable year over year trend in both these cost lines represents the initial progress we are making to better match local market resources with demand to create more efficient operations. We achieved year over year leverage across our 3 operating expense lines in the Q1, largely due to the workforce reduction that took place in January. Specifically on a year over year basis, technology and development expense declined 7%, sales and marketing expense declined 4% and general and administrative expense declined 5%.

Speaker 3

Adjusted EBITDA was negative $12,000,000 for the quarter. Higher revenue combined with our ability to drive efficiency in the local market operations faster than expected resulted in the beat versus the expectations we set on our earnings call. Now turning to the outlook. As we indicated in March, we are not issuing explicit quarterly guidance given we are still adjusting to the emerging booking patterns as the industry comes off 2 record years. As Rob alluded, we have been seeing some renewed bookings softening recently, especially in the closed in part of the booking curve.

Speaker 3

As a result, we are reiterating our full year 2023 revenue growth guidance of a low double digit to high single digit percentage decline year over year. But directionally, we currently expect to earn the majority of full year revenue in the first half of the year. We expect to provide a more informed view of full year revenues during our Q2 earnings call once we are well into peak season. For full year adjusted EBITDA. We are pleased with the progress we made during the Q1 in controlling local market costs and continue to strive for adjusted EBITDA profitability in 2023.

Speaker 3

Quarter. For the Q2, we expect adjusted EBITDA to be near breakeven consistent with prior years. As I conclude my last earnings call, I want to extend a thank you to Rob, the Board of Directors and the entire team at Vacasa. It's been an absolute privilege to work alongside them and to help guide Vacasa during a period of transformational growth and oversee Vacasa's entry into the public market. I'm excited to watch Vacasa continue to redefine the vacation rental management category.

Speaker 3

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

Operator

Vacasa first. Your first question comes from the line of Justin Patterson with KeyBanc. Your line is

Speaker 4

open. This is Jacob on for Justin. Could you compare and contrast performance in traditional vacation rental markets versus those that experienced rapid supply growth in 2021, 2022. As said differently, what percentage of the markets are stable versus what percentage are facing churn and occupancy headwinds?

Speaker 3

Question. Sure. So in terms of the market Look, from a churn perspective, we've kind of said that we've seen this pretty much across the board. We believe that it is largely driven by declines in homeowner income, which we believe that the industry is seeing as a whole in terms of the vacation rental segment based on the 3rd party data that we look at. So From that perspective, I wouldn't call out any market specifically.

Speaker 3

Obviously, there's different seasonal booking patterns that are going to quarter for key markets versus summer market. But generally speaking, on both the churn side as well as the bookings side, we're seeing similar dynamics. And I would just call out that we don't overly focus on occupancy or gross booking value per night sold. We will really look at those in combination with one another because there's a constant trade off there, right? We have the ability to optimize pricing in order to to maximize our homeowner income, which might have an impact, plus or minus on occupancy.

Operator

Your next question comes from the line of Mike Grondahl with Northland Securities. Your line is now open.

Speaker 1

Hi, guys. This is Owen on for Mike.

Speaker 5

I was just wondering On the previous call, you mentioned that last minute bookings were declining. I was just wondering if this trend has continued into 1Q and even into 2Q?

Speaker 2

Question. Yes. Thanks for the question. First of all, we've typically been able to drive bookings early in the booking curves, so far out from the reservation. And that requires us obviously to be optimizing what we see in demand and price.

Speaker 2

It's certainly been changing and that's there's been some of that volatility. We think this is a combination of a couple of things, higher supply, changing consumer demands, the macro backdrop, but it's hard to say. I think we're seeing less of the other dynamic more generally is we're seeing less of this close in or last minute bookings and just changes in how those bookings come in. So it just makes it a little bit difficult to guide overall. And the result of this is that the booking bill has been less predictable than it's been in prior years.

Speaker 2

So I think this is a function of consumer demand. It's coming off several years of sort of record strength. We think it's occurring across the industry and we're leaning into it to ensure we're putting our owners and their ability to earn revenue in this environment at the forefront of our minds.

Speaker 5

Great. Thanks. And then is there anything to call out on the international front?

Speaker 2

No, I don't think so. I mean, I think we our business is primarily domestic in the U. S. And primarily in the vacation rental markets. We do see demand coming from overseas, but nothing to call out in terms of the shape of that.

Speaker 5

Okay. Thanks for taking my questions.

Operator

Question. We'll pause for any last minute questions. There are no further questions at this time. Mr. Rob Grover, I turn the call back to you for closing remarks.

Speaker 2

Thanks very much for joining us today. I just wanted to take a moment to say thank you to our owners for entrusting us with their homes, to our guests who make memories with us, to all The colleagues at VICASA are working so hard to make this all happen. And finally to Jamie for everything she's done for VICASA. Thank you very much. Look forward to speaking with you next quarter.

Operator

Conference call. Thank you for attending. You may now disconnect.

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Earnings Conference Call
Vacasa Q1 2023
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