Vacasa Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 7, 2024

There are 4 speakers on the call.

Operator

Good afternoon, everyone, and thank you for joining us for today's call. I'm pleased to be joined by Vacasa's CEO, Rob Graber and CFO, Bruce Schuman. We have posted an investor letter on the Investor Relations section of our website at investors. Bacasa.com that will be referenced by our speakers. Comments made during this conference call and in our investor letter contain forward looking statements.

Operator

Such statements include those about our restructuring actions, including cost savings, future expectations, beliefs, plan, projections, targets, estimates, objectives, events, conditions and financial performance, including guidance for future period results. We caution that various risks and uncertainties could cause actual results to differ from those in our forward looking statements. For additional information concerning these risks and uncertainties, please read the forward looking statements section in the investor letter we issued earlier today in the Forward Looking Statements and Risk Factors section in our filings with the Securities and Exchange Commission. During this call, we may refer to 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 investor letter.

Operator

These non GAAP measures should be considered in addition to our GAAP results and are intended to supplement, but not substitute for performance measures calculated in accordance with GAAP. And now, I will turn the call over to Rob Graber. Rob?

Speaker 1

Thanks, Ryan, and thank you, everyone, for joining us this afternoon. I'll begin with some opening remarks and commentary on the business. Bruce will follow with a review of Q3 financial results, and then we'll open it up for Q and A. Before we begin, I'd like to acknowledge our homeowners and employees impacted by the back to back hurricanes in Florida and North Carolina. We are incredibly thankful for our team members who go above and beyond for our homeowners and guests while managing their own difficult situations during these challenging events.

Speaker 1

Their resilience in the face of such adversity is tremendous and I'm proud to have them as colleagues here at the Casa. This past quarter, our teams also wrapped up another successful summer peak season with the Casa serving nearly 400,000 guest reservations and generating over $300,000,000 of income for our homeowners. Importantly, quality metrics, including guest satisfaction and review scores on our channel partners websites increased year over year in the quarter. Peak season is demanding for our colleagues with high occupancy, same day turnovers and long to do list. Yet for our guests, these vacations are some of the most meaningful weeks of their year, a chance to relax, recharge and reconnect with family and friends.

Speaker 1

I couldn't be more grateful for the dedication of our local team members who delivered exceptional hospitality throughout the summer and embodied our mission to bring vacations home. Thank you. We believe that our operational success during the summer peak season offers an early proof point that the business transformation we are driving to reorganize and decentralize our operations to provide more autonomy and accountability to our field teams is delivering early results. By empowering teams to make market level decisions, we believe we're providing an improved hospitality experience for both homeowners and guests as well as driving greater efficiency in our operations. Ahead of peak season, we implemented several changes designed to give local teams greater control over various access to their markets, including selecting the type of homes brought onto our platform, setting and managing expense targets and moving more approval processes and accountability from headquarters to our local teams.

Speaker 1

We believe this kind of localization improves the experience of and outcomes for our homeowners. With peak season behind us, we continue to identify additional opportunities to localize decision making and drive further transformation. We've refined our sales approach, so our sales executives are aligned with regional teams as our model works best when salespeople bring on homes that local teams know how and want to manage. We are focusing our sales efforts on not just any home, but the right homes in terms of guest appeal, our ability to service them and ultimately their revenue potential. For example, homes that include attractive features like a pool, hot tub, ski in, ski out access or waterfront access, which we refer to as key amenities, tend to receive better guest reviews and command higher rates.

Speaker 1

On the product side, we continue to focus on tools designed to enhance the owner experience either directly in our owner tools or by further improving the tools for our teams that support them. This past quarter, we made initial progress in leveraging artificial intelligence to more efficiently provide information and context to our homeowner and guest facing teams, so they can resolve issues faster and improve service outcomes. Early gains from these applications in our guest experience department have been promising and we're now piloting various tools to extend those benefits to our field teams. I'm pleased with the progress we've made this quarter as we continue localizing our operations to better serve our homeowners and guests. We've lightened our corporate footprint and driven efficiency across our local market operations, while increasing guest satisfaction and review scores.

Speaker 1

We believe that is the formula for better results for our owners and guests and we're committed to that path. We're adjusting the way we work across the business and it's rewarding to see the positive impact of these changes. Not only is this progress evident in measurable areas, but we're also witnessing a meaningful cultural shift in our teams. Increasingly, our local field staff is adopting an owner mindset, taking accountability for outcomes in their local markets. While we are executing well against what we can control, we continue to face industry wide headwinds affecting booking trends in the leisure markets we serve.

Speaker 1

The short term rental industry continues to adapt to softer demand for domestic non urban vacation rentals and an increased supply of rental units resulting in ongoing variability in bookings. These trends continue to put real pressure on gross booking value per home, which flows through to revenue and profitability. Nonetheless, based on our and industry data, we continue to believe that in the significant majority of our markets, the Casa listings are generating more gross bookings per home than the industry generally. So our unit economics are currently impacted by continuing declines in home level gross booking value. We believe the industry will eventually normalize and that we are well positioned to capture the benefits when it does.

Speaker 1

I'd like to thank our teams for their dedication and focus amidst the ongoing transformation, and we look forward to continuing this momentum in the quarters ahead. With that, I'll turn it over to Bruce to review our Q3 results.

Speaker 2

Thanks, Rob. Unless noted otherwise, I will be comparing our Q3 results to the Q3 of 2023 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 Q3, gross booking value, which is the combination of nights sold and gross booking value per night sold, was $670,000,000 down 19 percent year over year. Nights sold were $1,600,000 in the 3rd quarter, down 21% year over year. Gross booking value per night sold was $4.13 in the 3rd quarter, up 2% year over year.

Speaker 2

As a reminder, there is a strong correlation between nights sold and 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 booking value per night sold with the goal of optimizing homeowner income. Over the past several quarters, we've discussed the year over year declines in average gross booking value per home as the industry normalizes off of the record highs from the past few years, and we saw this dynamic play out again in the 3rd quarter, with average gross booking value per home declining by about 12% year over year. We finished the 3rd quarter with approximately 38,000 homes on our platform, down from approximately 40,000 at the end of the second quarter, reflecting the ongoing churn dynamic that we have been seeing. The short term rental industry continues to adjust to various headwinds, such as increased supply and lower average gross booking value per home.

Speaker 2

We also continue to see owner concerns with rates and their resulting income as a leading cause of churn as the industry wrestles with these factors. 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 $314,000,000 in the 3rd quarter, down 17% year over year. Now turning to expenses. Cost of revenue was 40% of revenue in the 3rd quarter, consistent with the prior year and declined by 16% year over year. Operations and support expense was 17% of revenue in the 3rd quarter, consistent with the prior year and declined by 16% year over year.

Speaker 2

The year over year declines in both cost of revenue and operations and support expenses reflect our lower nights sold and homes under management compared to the same period last year. As expected, we saw our overall operating expenses decline significantly year over year following our restructuring action in May. Sales and marketing expense, which includes the fees we pay our 3rd party distribution partners, declined 30%. Technology and development expense declined 41%, and general and administrative expenses declined by 10%. Adjusted EBITDA was $69,000,000 for the 3rd quarter compared to $74,000,000 in the same period last year.

Speaker 2

Despite progress on our expense reductions, adjusted EBITDA continues to be affected by bookings variability impacting gross booking value per home and ultimately revenue, which declined by $65,000,000 year over year. As Rob touched on, we are continuing to experience bookings weakness in the combination of price or gross booking value per night sold and utilization or nights sold per home during the Q4. The ongoing industry dynamics and their impact on bookings variability and average gross bookings per home as well as continued elevated churn creates a wide range of outcomes for revenue, which then flows through to adjusted EBITDA. At this point, it remains difficult to provide forward looking guidance for the Q4. I'd also note that we don't currently expect the hurricanes from October to have a material impact on our financial results.

Speaker 2

As we look ahead, while our early bookings for the Q1 are currently pacing slightly better what we saw at about this time in 2023. Booking patterns are still very volatile and we are extremely cautious in how we view the coming year. As the quarter comes together in the months ahead, we will provide an update during our Q4 earnings call. With that, Rob and I will take your questions. Operator, please open up the lines.

Speaker 3

And we have no questions at this time. I will hand the call back to Rob Graber for closing remarks.

Speaker 1

Thanks very much. We know the earnings calendar was full this afternoon due to the election earlier this week. So I want to thank everybody who's able to join us live. I also want to take a moment to thank our owners for entrusting their homes to us. And importantly, a big thank you to all of our colleagues at Picasa for another successful peak season.

Speaker 1

We look forward to speaking with you all next quarter. Thank you.

Speaker 3

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.

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Earnings Conference Call
Vacasa Q3 2024
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