Vacasa, Inc. (NASDAQ:VCSA) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Good 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 Vacasa 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 Instructions] Thank you. Ryan Domyancic, Investor Relations. You may begin your conference.

Ryan Domyancic: Good afternoon, everyone, and thanks for joining us today for Vacasa’ First Quarter 2023 Earnings Call. I’m pleased to be joined today by CEO, Rob Greyber and CFO, Jamie Cohen. Before we begin, let me cover a few administrative details. This call contains information that speaks only as of the date of today’s live broadcast and redistribution of this broadcast is prohibited. We have posted a shareholder letter on the IR section of our website at investors.vacasa.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. Such statements include those about future expectations, beliefs, plans, projections, targets, estimates, 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. 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 and are not intended to be a substitute for our GAAP results.

And now I’d like to hand the call over to Rob Greyber. Rob?

Rob Greyber: 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 first quarter 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 through our central teams, we have been positioning Vacasa to deliver for homeowners and guests during our busiest summer months. Over the past several months, I and members of our leadership team have also taken several opportunities to visit local Vacasa markets, meeting with homeowners and colleagues. 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 three 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 four priorities in the year ahead, which include worthlessly 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. We believe that executing against these priorities will position us for sustainable long-term profitable growth in future years. 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.

During the first quarter, 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 third and fourth quarters, we did not adjust staffing levels as quickly as we would have liked. We took structural actions during the fourth quarter, 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 a number of reservations in each period and to share best practices across regions.

From these learnings, we made further market level headcount adjustments in January. The combination of these actions resulted in Vacasa exiting the first quarter with staffing levels that better match demand, and that contributed to our adjusted EBITDA outperformance during the first quarter. 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. 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 two record years.

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, 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. 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 HomeCare 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 clean, the average clean score by guest, clean inspection checklists and the status of maintenance tickets directly to the owner through the mobile app. 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.

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. 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&L responsibilities. I’m excited to welcome Bruce to Vacasa and the executive team next month. Over the past two 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 based 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 the responsibilities to Bruce. With that, I’ll turn the call over to Jamie to review our first quarter results and latest outlook. Jamie?

Jamie Cohen: Thanks, Rob. First, I’ll review our first quarter 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 first quarter results to the first quarter of 2022, and I’ll be referencing the operating expense line, excluding the impact of stock-based compensation, restructuring costs and business combination costs, which you can find outlined in our shareholder letter. For the first quarter, gross booking value, which is the combination of night sold and gross booking value per night sold reached $521 million, up 5% year-over-year. Night sold were $1.4 million in the first quarter, up 6% year-over-year, with the increase primarily driven by the addition of new homes to the platform.

Gross booking value per night sold reached $364 in the first quarter, down 1% year-over-year and the first 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 continued in the first quarter, with the year-over-year growth in average homes in the quarter, higher than the growth of night sold and the year-over-year decline in gross booking value per nights sold. Remember, there is a strong relationship between night sold and gross booking value per night 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 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 million in the first quarter, up 4% year-over-year and above our guidance of $230 million to $240 million. As we noted during our fourth quarter earnings call in March, we continue to experience variability in booking patterns and severe weather in our ski market, which led us to be more cautious with our first quarter guidance. Now turning to expenses. Cost of revenue was 48% of revenue in the first quarter versus 52% of revenue in the same period last year when excluding the $15 million benefit from future state credit. Operations and support expense was 23% of revenue in the first quarter, consistent with the same period last year, growing 3% year-over-year.

You’ll recall, these two expense lines primarily consist of our local market and customer support costs. 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 three operating expense lines in the first quarter, 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%. Adjusted EBITDA was negative $12 million for the first 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 last 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 two record years. As Rob alluded, we have been seeing some renewed bookings softening recently, especially in the close-in part of the booking curve. 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 revenue during our second quarter earnings call once we are well into peak season. For full year adjusted EBITDA, we are pleased with the progress we made during the first quarter in controlling local market costs and continue to strive for adjusted EBITDA profitability in 2023.

For the second quarter, 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 oversea Vacasas’ entry into the public market. I’m excited to watch Vacasa continue to redefine the vacation rental management category. With that, Rob and I will take your questions. Operator, please open up the line.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Justin Patterson with KeyBanc.

Operator: Your next question comes from the line of Mike Grondahl with Northern Securities.

Operator: [Operator Instructions] There are no further questions at this time. Mr. Rob Greyber, I turn the call back to you for closing remarks.

Rob Greyber: 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 Vacasa who are working so hard to make this all happen. And finally, to Jamie for everything she’s done for Vacasa, thank you very much. We look forward to speaking with you next quarter.

Operator: This concludes today’s conference call. Thank you for attending. You may now disconnect.