CDW Q2 2023 Earnings Call Transcript

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August 8, 2023

There are 6 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Vaca's Second Quarter 2023 Earnings Call. At this time, all participants are in a 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

Speaker 1

Session.

Speaker 2

Objectives, events, conditions and financial performance. We caution that various factors could cause actual results to differ 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 in the forward looking statements and risk factors section in our filings with the SEC. During this call, we will discuss certain non GAAP financial measures. May be found in our shareholder letter.

Speaker 2

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'd like to

Speaker 1

hand the call over to technology driven real estate lenders. More than other industry operators manage in a year, a reminder of the size and scale of Vacasa 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 on social media in recent months with articles discussing market dynamics such as demand returning to urban and international destinations and uptick in hybrid and in office work and most significantly increased vacation rental supply. And the industry. While 2023 has been a more challenging environment for vacation rentals relative to the record levels reached last year, We are primarily seeing lower gross booking value per night or price, while nights sold per average home during peak season is tracking roughly in line with last year.

Speaker 1

As a result, our teams are busier than ever welcoming guests for their summer vacations. We are sharply focused on execution and are seeing some early benefits as we work against the priorities we set and the changes we made starting last year. I'm pleased with our progress in operations and I'm proud of the Service levels we are delivering during our seasonally busiest summer months. I want to recognize the dedication and hard work of all the Vacasa colleagues in the field. Vacasa addresses 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.

Speaker 1

Over the past 9 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 Vacaasas employees for helping make demonstrable progress across all facets of our business. Ruthlessly prioritizing our business needs to drive profitable growth. There is always more to do, but we've made substantial progress against these goals. But we are gaining real momentum across our entire business and I remain incredibly excited for what's ahead.

Speaker 1

We spent the last several quarters becoming more tactical in the way we operate in our local markets, particularly with regards to aligning Staffing levels in a dynamic reservation environment. In 2021 2022, our teams were 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. As a result, during the Q2, we saw 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 as guest satisfaction, for example, among other key metrics is right in line with last year.

Speaker 1

On the approach to managing local markets, we are removing layers of management and empowering the owner and guest experience teams who take care of customers. We've also set up processes that drive closer alignment across all the functions that support these local operations teams with better analytics 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. Of 50 photos showing the condition of their home. Since launch, we've shared millions of photos with homeowners.

Speaker 1

We've also incorporated both SMS and web expertise that our homeowners crave. Simplifying the pricing structures we offer to homeowners, rolling out internally developed technology tools to improve the onboarding experience for new homeowners and reducing the number and complexity of the incentive plans we manage internally. In the second half of the year, our focus will continue to be on solidifying the productivity improvements we've made in recent months. Our data continues to indicate that the higher level of churn is primarily due to concerns about levels of homeowner income as the industry comes off 2 record years. These advancements are improving experiences and having a positive meaningful impact on our business.

Speaker 1

In the first half of the year, we launched a click to SMS feature giving guests the options to transfer to SMS rather than waiting on hold to speak to an agent. Guests have resoundingly opted for this feature with SMS inbounds now exceeding phone inbounds. These changes create a better experience for our guests, allowing them to more easily communicate with Vacasa and get answers to their questions faster, while improving the efficiency of our customer service representatives. The team is also exploring how new artificial intelligence tools can be used in our workflow. For example, we are now using a tool to Analyze listing photos of the homes we manage to ensure homes are tagged with all the relevant amenities.

Speaker 1

As well as provide us with image quality scores. The goal is for these insights to help improve the guest booking experience by serving up the most relevant homes for any query or filter and drive 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, 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 We're working so hard this summer peak season and throughout the year to bring vacations home for our homeowners and guests.

Speaker 1

Bruce?

Speaker 3

Thanks, Rob. First, I'll review our 2nd quarter financial results, then I'll provide an updated outlook for 2023. Unless noted otherwise, I will be comparing our Q2 results to the Q2 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 Q2 gross booking value, which is the combination of nights sold and gross booking value per night sold reached $622,000,000 down 8% year over year.

Speaker 3

Knights sold were $1,700,000 in the 2nd quarter, up 3% year over year. However, gross booking value per night sold was $3.68 in the 2nd quarter, down 10% year over year. Over the past few quarters, we've talked about the decline in average gross booking value per home As the industry normalizes off of the record highs from the past few years, this dynamic continued in the 2nd quarter with a 10% year over year decline in gross booking value per night sold, while average nights sold per home on our platform was roughly flat year over year. Remember also there is a strong relationship between nights sold and gross booking value per nights sold and it's difficult to look at either in isolation. Our revenue management algorithms and team are constantly evaluating the trade off between price and occupancy and the mix of nights sold and gross booking value per night sold with the goal of optimizing homeowner income.

Speaker 3

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 $305,000,000 in the 2nd quarter, down 2% year over year. Now turning to our expenses. Cost of revenue was 47% of revenue in the 2nd quarter versus 49% of revenue in the same period last year. Operations and support expense was 20% of revenue in the 2nd quarter versus 19% of revenue in the same period last year. These two expense lines primarily consist of our local market and customer support costs.

Speaker 3

As Rob alluded to, In our central operations where we achieved year over year leverage across our 3 other operating expense lines in the 2nd quarter. Specifically on a year over year basis, technology and development expense was flat, sales and marketing expense declined 9% and general and administrative expenses declined 47%, though there were some non recurring expenses last year. Adjusted EBITDA was $16,000,000 for the 2nd quarter compared to a $2,000,000 loss in the same period last year. The $19,000,000 year over year improvement despite a 3% increase in nights sold and a 2% decrease in revenue demonstrates the progress all of our teams are making in operating the business with increased discipline. Now turning to the outlook.

Speaker 3

As we indicated in March, we are not issuing explicit quarterly guidance given we are still adjusting to the changing booking patterns as the industry comes off of 2 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 booking curve. That said, given we are well into peak, we believe that we will land at the higher end of our initial full year 2023 revenue growth guidance range and now expect 2023 revenue to decline 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, Rob and I will take your questions.

Speaker 3

Operator, please open up the lines.

Operator

Thank you, Mr. Sherman.

Speaker 2

And just a reminder, if you

Operator

do find your question has already been addressed this afternoon, You can remove yourself from the queue by pressing star 1 again. We'll take our first question today from Doug Anmuth at JPMorgan.

Speaker 1

Thanks, Doug. Appreciate the question.

Speaker 3

On the

Speaker 1

first piece with respect to the macro environment 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 A really kind of a return to what is a normal sort of booking pattern off of on some level off of the peak highs 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 sloshing around in the global travel As things as consumers get used to new flexibility, new availability to travel to destinations that might have been closed during COVID and so forth. And I think that there's probably still some more to come in terms of different trends geographically, for example, in the North American market.

Speaker 1

I think the East Coast is much more back to the office and in some of those normal rhythms and the West Coast, I think there's probably still a little bit more to go. As it touches our business, I mean for the most part, we see some of the uncertainty and 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 one, Doug.

Speaker 3

The second one was related to that. So when you Anticipate you'll start lapping the worst of these changes, meaning like when should your business or top line start accelerating again?

Speaker 1

Yes. I think in terms of that when 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 the industry and none of us have a crystal ball. I left mine at home today. But for the most part, this is what you see and we feel comfortable that we can navigate it on behalf of our owners and on behalf of our business.

Operator

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

Speaker 4

Great. Thanks for taking the questions. On GBV per night sold, down 10% 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 normalize this year.

Speaker 4

And then maybe a question as it relates to GBV per night sold. Does do these GBV per night sold trends kind of inform on churn levels? And I guess, if Are the kind of technology and sales efforts you're seeing as a result of these lower GBV per night sold?

Speaker 3

Our revenue management team is really always looking at this. They have proprietary systems. They're looking at industry data. They're looking at daily bookings intakes And conducting AB test to really determine the optimal mix of pricing and sell through really to maximize income for homeowners. Home growth while price or gross booking value per night sold that was down as you know 10% year over year.

Speaker 3

So to answer your question through the first half You've seen that kind of play out gross booking value per nights sold declined with smaller changes in nights sold. Absolutely. I think that

Speaker 1

Just some elevated levels of churn in the 4th quarter and that's continued through the 1st part of the year. That coincided and we dig into this as much as We possibly can. That certainly coincided with some of the changes in the economic and the demand environment that we've cited before. And we certainly see owners some extent that's just coming off of these highs that we've seen. At the same time, we are focused on the things that we can control.

Speaker 1

And so we have Really leaned into this. We've done 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 GBV per night sold, It's pretty clear that when you look at industry data, we are delivering well on our ability to drive revenue for our owners when we compare ourselves to the market at large. And then delivering on them or exceeding them wherever we possibly can.

Speaker 1

Again, I would just say that in terms of the dynamic in general, what we Back to play out is this is an industry wide phenomenon. So to the extent that there is some of this frustration, we think it's across the industry. You think you see that we're acting on those things and we think that the data is showing that we're delivering for our owners and that's the most important thing. Great.

Speaker 4

Thank you both.

Speaker 1

Thank you.

Operator

And we'll go next now to Jed Kelly at Oppenheimer.

Speaker 5

Hey, great. Thanks for taking my question. Just looking at the EBITDA improvement relative to lower revenue, you're really Making a lot of nice efficiency gains. Can you talk about I know you talked on it 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 sales force productivity,

Speaker 3

for us throughout the entire Q2. I think a couple of examples I would point to. I think we did a much better job this quarter in just operating discipline in the Our field teams managing resources much more tightly to kind of variable booking patterns and just doing a better job in execution there. I think we've 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.

Speaker 3

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 at a very tactical level as they navigate what we all know is a very dynamic environment. So It's really an execution story. There will be some steps forward, steps back like we've talked about, but we're just focused on keeping that progress going across the business.

Speaker 1

Yes. As I think about that, Jud, I really think about that in the context of what we're doing overall here. So first, To have a growth motion that is repeatable, that is dependable, that is process driven and so forth and then improving the product cadence. You're asking about that 2nd part of the formula, if you will. And there, look, the sales team had a nice second quarter.

Speaker 1

We had solid That progress, I think it's a focus on the execution elements of the go to market motions of the business. So Finding the right size for the sales force, better aligning those teams from a geographic perspective, simplifying key aspects of 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 Continuing to invest in sort of the standard operating procedures and the growth motions. And then as we get into the back half of the year or next year, that's when we'll start to potentially explore increasing

Speaker 2

And then just

Speaker 5

given the RevPAR headwinds the industry is facing, I'm sure some of the Owners that are doing it themselves are facing similar headwinds. So are you seeing now more inbound from owners that probably had a good 'twenty one, Are struggling in the back half of 'twenty two into 'twenty three. Are you seeing more inbound from some of these owners that thought they thought it was easy in 'twenty one, but now realizing

Operator

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

Speaker 1

And also thank you to all of our owners for your partnership and for all of the work we've done together. Thanks very much. We'll talk to you again next quarter.

Operator

Thank you, Mr. Graeber. Again, ladies and gentlemen, that will conclude the Vacasa Second Quarter 2023 Earnings Call. We'd

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