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spk06: and will be available for replay from our Best Relations website shortly after this call. With me on the call this afternoon is Erin Easterly, Chief Executive Officer and Co-Founder, Brent Turner, President and Chief Operating Officer, Tracy Knox, Chief Financial Officer, and Charlie Wickers, VP of Finance at Rover. Before we begin, I'd like to remind everyone that management will make certain forward-looking statements within the safe harbor provisions of the Securities Litigation Reform Act of 1995 on this call, identified by the words expect, believe, will, assume, ongoing, and similar expressions. Forward-looking statements are based on then current expectations, estimates, forecasts, and projections, and the beliefs and assumptions of management and relate to our future financial performance, such as our second quarter 2022 and full year 2022 financial guidance, trends for our gap and non-gap marketing expense as a percentage of revenue, marketing investments and initiatives, bookings upside, financial impacts of our warrant redemption, other future events in industry and market conditions, and forward-looking statements about Rover, its platform, and its domestic and international market opportunity. These forward-looking statements are subject to known and unknown risks and uncertainties and assumptions that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statement. We strongly encourage you to review this information that Rover files with the SEC regarding specific risks and uncertainties In particular, those that are described in the risk factor section of Rover's Form 10-K filed with the SEC on March 21, 2022, and those that will be disclosed in our first quarter Form 10-Q. These forelooking statements speak only as of today. Rover undertakes no obligation to update these statements to reflect subsequent events or circumstances, except as required by law. You should not place undue reliance on our forelooking statements as they are not guarantees of future performance. Finally, during the course of today's call, we will discuss audited and unaudited GAAP and unaudited non-GAAP financial measures. We provide a reconciliation of these non-GAAP measures to the most comparable GAAP measures in the Investor Presentation and Non-GAAP Reconciliation, which is posted under News and Events Presentations on the Investor Relations section of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to GAAP financial measures. Unless otherwise noted, we will compare all Q1 2022 metrics to Q1 2021 metrics in this call. And with that, let's get started. I will turn the call over to Aaron Easterly, co-founder and CEO.
spk05: Thank you, Brinley, and thank you everyone for joining us today. I will begin by discussing our high-level first quarter 2022 earnings results and some non-financial highlights. Then I will turn it over to Brent to provide you with more details on our bookings and marketing investments. Tracy will then conclude by walking through the financials and our guidance. Overall, I am pleased with our results in the first quarter. Despite the impact from COVID, including the recent Omicron variant, the business slightly exceeded the high end of our guidance range. First quarter revenue of $27.8 million was up 128% year over year. Gross booking value, or GBV, grew 137% to $153.7 million. New bookings were up 76% to $179,000. And adjusted EBITDA was negative $4.8 million, which was a 19-point adjusted EBITDA margin improvement year over year. At Rover, we remained focused on building long-term enterprise value. During the first quarter, we made significant strides in two areas that are important to that goal. First, given the TAM opportunity and our strong unit economics, we would want to expand our market investments, but to do so cost-effectively. This process has been somewhat slower than anticipated due to the ongoing disruption by COVID variants. In Q1, our team made material progress on this front, and going forward, we expect to have a broader array of marketing channels we will be using to drive growth. Second, We have viewed our international footprint, Canada and eight countries in Europe, as an important element of long-term growth and value creation. In Q1, we saw our international sales grow to 7% of GBV compared to just 3% in the year prior. As COVID recovery has progressed, it has enabled us to reaccelerate our investment in scaling the business in Europe. While there are small players in Europe, we believe a large percentage of the market opportunity is still untapped, and Rover has the balance sheet, technology, and data capabilities to drive significant gains. We hope to build on this progress in the coming quarters. As we noted in our Q4 earnings call, we entered 2021 with a belief that the pandemic and its impact on our business would have largely ended by the start of 2022. This did not happen, and instead other sources of macroeconomic uncertainty have additionally emerged. Despite that, Rover commenced 2022 with strong performance and traction towards our longer-term goals, and the underlying trends in the pet industry remain very exciting. While we are cautiously optimistic about some of the trends other travel companies are seeing, it is worth knowing that the vast majority of pet parents book within a month of their service needs. Overall, though, we have confidence in our future and remain centered on our mission, making it possible for everyone to experience the unconditional love of a pet. And now I'd like to hand over the call to Brent to provide more detail on our bookings and operational performance.
spk01: Thanks, Aaron, and greetings to everyone on the call. I'll first start by adding a bit more color regarding the performance of the business in Q1. Then I'd like to communicate a reporting change that we plan to implement as it relates to our marketing spending. We have continued to demonstrate strong performance in our marketplace. Perhaps most notably, total bookings increased 81% year over year, to 1.2 million, which is a Q1 record. We view this result as an indication of Rover's increasing traction with both pet parents and care providers as we scale. In Q1, worldwide new customer acquisitions were 179,000, an increase of 76% from Q1 2021. Most of our customer acquisitions were in the United States, but this quarter we also saw accelerating growth in European new customer acquisitions alongside strong growth in Canada. We view these results as encouraging signs that both regions can become material contributors to worldwide new customer acquisitions in future quarters. Turning to customer acquisition costs, as communicated previously, we entered the year with the intention of increasing marketing activities significantly when compared to last year. Against that backdrop, worldwide CAC in Q1 increased to $16, compared to $7 in Q1 2021. While we are deliberately increasing our marketing investment, we continue to see strong efficiencies across paid and organic existing channels. And now, to give a little bit more context on our change in reporting, beginning with our Q3 earnings release this year, we are going to transition away from disclosing CAC. Instead, we're going to focus on marketing as a percentage of revenue. The disclosure of CAC which is a calculation of the direct costs of customer acquisition, has been appropriate during the past two years when the dominating majority of our spending has been concentrated in direct response campaigns. However, Rover's strategy is to leverage video, social, and similar media and creative types to drive measurable ROI despite their longer return dynamics. Although some companies classify this spending as awareness or brand spending, And what these expenses are important to capture is a way of evaluating our investment in demand generation. They're included in our advertising expenses line, along with the expenses historically thought of as CAC. Therefore, we believe that marketing expense as a percentage of revenue will be a more appropriate metric to focus on in the future, and we plan to do that again beginning in Q3. On this note, looking ahead, I would like to provide some additional color on how we expect marketing as a percentage of revenue to trend. In Q1 2022, non-GAAP marketing, which excludes stock-based compensation, was 25% of revenue, up 400 basis points from Q1 2021. Long-term and adjusted seasonally, we expect non-GAAP marketing as a percentage of revenue to be between 18% and 25%. The higher Q1 percentage is reflective of the impact of Omicron, as well as seasonality on our revenues. Specifically, a portion of our revenue carries over to Q2, because of spring break and Easter timing. I'd like to now turn briefly to our existing marketing investments. We are pleased to report that based on the results of tests that we conducted in Q4 and Q1, we expect to increase spending in Q2 on our video, social, and similar channels. Further, we also expect to conduct additional testing in future quarters as we continue to execute our learning roadmap. While we are excited about the progress made in our new customer marketing initiatives, we are equally excited about repeat bookings, which were 984,000 for Q1, a year over year increase of 82%. And while we are pleased with this record Q1 performance, we also believe that further upside remains in the long term as macroeconomic headwinds ease. We continue to leverage our CRM channels as a cost-efficient way to invite our customers back to the marketplace. In conclusion, we are pleased with the results of our investment to date and the strength of our results this quarter. Rover continues to execute nicely, attracting new customers and building scale. And now I'll turn it over to Tracy to walk through our financial performance.
spk08: Thanks, Brent. I'll begin today by providing an overview of our financial results for the first quarter of 2022, followed by guidance. Unless noted otherwise, I'll be comparing our first quarter results to the same period in 2021. As a reminder, our discussion of expenses will cover non-GAAP amounts, which exclude stock-based compensation expenses. Revenue in the first quarter was $27.8 million, up 128%, while first quarter GBV was $153.7 million, up 137%. Our first quarter revenue exceeded our guidance, driven by strength in bookings in Europe and continued increases in seasonal ABVs. Brent already discussed bookings, but I want to give a little more color on ABV. First quarter ABV was $132, up 31%, largely driven by a 15% average increase in price per service, with a skew of higher increases in overnight services. We believe this is due to a continuation of the more significant provider-initiated price increases that started in Q2 of 2021, and as a result of our extended state billing feature, which rolled out in Q4 last year. Moving to expenses, cost of revenue in the first quarter was $7.8 million or 28% of revenue compared to $4.2 million or 34% of revenue in the prior year period. The 600 basis point improvement was largely driven by the scaling of revenue and leverage achieved on the portion of costs that are more fixed in nature. namely amortization of internally developed software and certain technology platform costs. Non-GAAP marketing expenses were $7 million in the first quarter, up 173% over the prior year, as we've continued to ramp our marketing investment in mid and upper funnel channels, as noted earlier by Brent. First quarter non-GAAP operations and support expenses were $5 million, or 19% of revenue, compared to 18% of revenue in Q1 2021, driven by hiring ahead of the seasonal increases we expect for summer travel. We continued to see leverage in non-GAAP product development expenses, which were $5.2 million, or 19% of revenue for the quarter, compared to 34% of revenue in Q1 2021. First quarter non-GAAP general and administrative expenses were $9.2 million, or 33% of revenue compared to $6.1 million or 50% of revenue in Q1 2021. The increase year-over-year in expense is a result of the investment needed to support our transition into the public markets, while the decline on a percentage basis is due to our scaling of revenues from our COVID-depressed Q1 2021. In addition, there was a sequential decline in expense from Q4 of $900,000. The sequential decline is due to the one-time costs in Q4 related to our secondary transaction. Moving on to other income and expenses. In Q1 2022, we recorded a $4.6 million gain as we accounted for the remaining change in the fair value of the derivative warrants aligned with their redemption in January 2022. This change in fair value flows through other income during the period, resulting in a total net loss of $8.1 million. Now that the warrants have been redeemed, they will have no further impact to other income loss. Adjusted EBITDA was negative $4.8 million, or a margin of negative 17%, up from the adjusted EBITDA margin of negative 36% in Q1 of last year. The improvement in adjusted EBITDA margin resulted from strong revenue paired with ongoing operational expense efficiencies during the quarter. From a liquidity perspective, our total cash, cash equivalents and investments of $279 million remains flat from Q4. In summary, our business delivered strong top and bottom line results during our seasonally low and Omicron impacted period. Now turning to guidance. For the second quarter of 2022, we expect revenue of $41 to $43 million and adjusted EBITDA of breakeven to $2 million. This guidance reflects expected ongoing growth of 67% to 76% in our top line, while continuing to invest in marketing initiatives ahead of the summer travel season. For the full year 2022, we are reiterating prior guidance and expect revenue of $160 to $180 million and adjusted EBITDA of $17 to $21 million. We last had the chance to update you on March 7, which was nine weeks ago. In that period of time, we have seen increasing case counts in the Northeast and continuing ebbs and flows in other regions. The low end of our guidance continues to assume material impact from new variants in 2022, in addition to the full year impact related to Omicron. The high end of our revenue guidance assumes no material impact from new variants, but does include modest ongoing impacts. The midpoint of our adjusted EBITDA range implies an 11% adjusted EBITDA margin, approximately flat with the full year 2021, and is inclusive of a normalizing investment in marketing, a scaling investment in product, and a full year of public company costs. Looking ahead, we continue to be very excited about the underlying health of the business, the unit economics, and our ability to drive positive, increasing adjusted EBITDA. I'll now turn the call over to the operator for questions.
spk00: Thank you. Ladies and gentlemen, if you have a question, once again, if you have a question or comment at this time, please press star then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press star then 1 on your telephone keypad. Our first question or comment comes from the line of Andrew Boone from JMP Securities. Your line is open.
spk09: Hi, guys. Matt Condon on here for Andrew. And just two for me here, just to pick up a marketing spend in the quarter, can you just talk about where you guys are seeing success and what channels and maybe which ones you're going to be testing going forward here? And then just on another note, just given some of the success that some of your competitors have talked about with subscription, can you just give your thoughts on subscription and if that makes sense, especially with your skew towards boarding?
spk01: Hey Matt, Brent Turner here. I appreciate the question. We are, I think we may have mentioned on the script, we are currently testing channels like video, social, video in all formats, streaming and linear, YouTube, with the intent of trying to drive demand. We did some of those tests in Q4. We stood some of the tests up in late Q4. We've done some testing in Q1. We're pretty encouraged about the results early going.
spk05: This is Aaron. On the second piece, I'd say that we already have a subscription-like offering with regards to our dog walking business. In late 2019, we allowed people to sign up for basically recurring dog walking that would just be auto-billed on a go-forward basis. that's about 50% of our dog-walking revenue these days. So we've seen a lot of success with that. With regards to the broader question around other forms of packaging, pricing, subscriptions, as you said, we expect to continue to test pricing models. Anything with regards to subscription, we want to make sure that the customer value proposition is right and that there's a good value exchange before rolling it out.
spk09: Great. Thanks, guys.
spk01: Thank you. Thanks, Matt.
spk00: Thank you. Our next question or comment comes from the line of Maria Ripps from Canaccord. Your line is open.
spk10: Thanks for taking my questions, and congrats on strong numbers. First, can you talk about sort of what kind of seasonality you're expecting for the balance of the year compared to pre-COVID? And maybe related to that, can you talk about sort of dog walk and recovery more broadly in context of return to work and sort of normalizing behavior? And then I have a quick follow-up.
spk05: Sure. Hi, Maria. Thanks for taking the time today. With regard to seasonality, our business is largely driven by the seasonality related to leisure travel. And so typically Q1 is our slowest quarter and typically has a higher mix of non-overnight services. That ramps into Q2 with spring break and Easter holiday. Then you see Q3 ramp again, which has the bulk of summer travel. And then in Q4, we often see an increase as well with regard to sales, but sometimes the actual transaction volume is a little bit less than Q3. And that's because for Thanksgiving and Christmas, travel, sometimes those are longer stay durations. So the average booking values tend to be higher. With regards to return to work, we continue to see some softness, at least relative to the other service lines, with regards to dog walking. With regards to Q1, it's down modestly as a share of the business, up in absolute terms. but consistent with not having seen a broad return to work in Q1. With regard to Q2, we see a little bit of acceleration and dog walking, but too early to develop a strong opinion on it.
spk10: Got it. That's very helpful. And then secondly, appreciate all the call around your international markets. Can you maybe just talk about sort of the type of investments that you need to accelerate your growth internationally, and is that embedded in your guidance already? And maybe more broadly, can you talk about sort of where some of those markets stand in terms of product evolution and brand awareness? Thank you so much.
spk05: Sure. So it varies a little bit by market. I think our position in Canada is more similar to the U.S. We have a strong level of awareness in the U.K. Some of the other European countries are more nascent. With regards to the investments, we have attempted to include those in our guidance, although if there are opportunities to accelerate further, we may accelerate some spending to drive additional investments. as we see events unfold over there. Overall, the investments required in internationals around currency and language and marketing, we took the opportunity of the pandemic to kind of make investments in those areas a better set of steps. better set ourselves up on a go-forward basis, and it looks like that those have paid off, including revisiting some of our language support and looking on how to improve our strength in organic customer acquisition there.
spk10: Got it. That's very helpful. Thank you very much.
spk05: Thank you.
spk00: Thank you. Our next question or comment comes from the line of Ralph Shackart from William Blair. Your line is open.
spk03: Good afternoon. Thanks for taking the question. Tracy, I just want to go back on some of your comments. We talked about ABV, I think, up about 15% year over year. Was that primarily just a mixed shift in some of the services and maybe just sort of more broadly? Can you remind us if you're starting to see any inflationary impacts on the supply side, either potentially similar costs going up or potentially them looking for opportunities to raise rates in an inflationary environment and how the marketplace would respond in that type of environment? Thanks.
spk08: Sure, Ralph. Thanks for joining us today. We're definitely seeing increasing in pricing that's set by the service providers. We're seeing more significant increases there. We did see some last year, but I would say that it stepped up again in Q1. um so whether that's due to inflation or some other reason i you know i can't pinpoint their exact rationale for that but we're seeing it across the board and most pronounced in uh overnight services okay great and then just maybe on the international front can you maybe give some perspective on how i know it's early obviously but how the brand is resonating
spk03: You know, would the marketing campaigns have to change either country by country or versus, you know, some of the leverage you might be able to get from the domestic marketing campaigns?
spk01: Hey, Ralph. Brent Turner here. Great question. We feel good about our progress thus far. You know, to start with Canada, we're seeing quite a bit of growth in Canada. I think new customer growth in Q1 was up 220%. which is a Q1 record, which sets a Q1 record for us and is following faster than just the opening of the country in our view. In Europe, we feel good about how our brand is resonating. I was just taking a look. We got some aided and unaided awareness stats in from Europe. And it's interesting that Europe fairly quickly from a – from both an aided and unaided awareness standpoint, has snapped similar to where we are in Canada, about 11% unaided and bouncing between 20% and 40% in aided. And I think what we make of that is that the work that the Rover blog has done before market entry and then the investments we've made in our content practice have really led the presence of the marketplace in terms of creating broad awareness of the Rover brand and also allowing us to communicate what and who we are ahead of the marketplace.
spk05: This is Aaron. A little bit of color commentary on that. The investments in content marketing and the investments in organic customer acquisition and are really kind of fixed-cost technology investments. There's a little bit of work to localize language and make sure that they're appropriate to be consumed locally, but those are more kind of fixed in nature. And then the pushing on the accelerator with regards to advertising has been more of a country-specific dynamic. Hope that's helpful.
spk03: That is. Thank you very much.
spk00: Thank you. Our next question or comment comes from the line of Lauren Schink from Morgan Stanley. Your line is open.
spk07: Great. Thanks. I think, Erin, you said in your prepared remarks, you know, there are some other sources of macroeconomic uncertainty. Just wondering if you can elaborate a little bit on that and whether or not you think that's had any impact on the business thus far. And then, Tracy, just remind us with the July 4th holiday, sort of the different moving pieces between 2Q and 3Q in terms of GBV versus revenue. Thanks.
spk05: I'll take the first piece there. Hi, Lauren. Great that you're on the call. With regards to sources of macroeconomic uncertainty, I'd say let me start with inflation. The inflationary dynamic in the U.S. is in some part has some unknown effects and in some parts some known effects. We have generally seen service providers increase their prices, which acts as kind of a natural inflation hedge. So the prices in the marketplace tend to drift up with cost of living and inflation. Whether or not that has subtle longer-term effects on demand suppression, particularly in an environment of a slowing economy or of Fed tightening, is something that we don't have perfect visibility to yet. The broader macroeconomic climate is also something in the second half of the year we have less visibility to, as well as geopolitical instability, how that may affect European growth. As a reminder, our business is really heavy in the second half of the year, which is our biggest periods. And so it's a relatively small portion of the expected revenue for the year that we've seen come through the marketplace so far.
spk08: Hi, Lauren. And the second question around 4th of July, great question. We know that's tripped up some forecasting in the past. This year it's on a Monday, and so our best guess is that many of the stays will actually start on the 1st or the 2nd. So you'll see the GBV come in largely in Q2, but the revenue will likely get pushed to Q3. Great.
spk00: Thank you. Thank you. Our next question or comment comes from Mr. Tom White from DA Davidson. Your line is open.
spk02: Great. Thanks for taking my questions. I guess one on the kind of shift here to more brand-oriented spend or or just kind of channels other than kind of pure performance. Maybe share with us, how should we think about kind of the payback on that spend relative to performance in terms of timing? Will there be sort of a lag there? Do you think you might be able to find some kind of lower funnel demand with those new channels that you've been testing? And then just to follow up on the guidance, you beat the first quarter outlook by a couple million, held the full year. I appreciate that it's a seasonally slow quarter, et cetera. But a lot of the travel companies talked about Omicron kind of coming in fast and leaving fast and travel kind of snapping back pretty quickly. Just curious whether there's some conservatism maybe kind of baked into the holding the full year.
spk01: Hi, Tom. Brent Turner here. I really appreciate the question. Yeah, the payback for the more what we would call mid-funnel, you call brand-oriented spend, is definitely longer. We are certainly able to find some lower funnel demand when we do that, but if you really, really think about a travel business and the number of weeks that the typical family is in the market for travel, Once you do the math, we're not really trying to do that. What we're trying to do is create a conversation or create a memory such that we are a part of the consideration for their pet care when they do travel. With that being said, over the years, we've run enough of these campaigns that we sort of understand what the response curves looks like, and we feel like we're getting better and better at calling those campaigns early in terms of where they're going. And so that enables us to make decisions about whether to continue or whether to increase spend for those kinds of campaigns earlier. So I would think about a longer return period, but we've spent quite a bit of time and investment platforming from a data standpoint in a way that makes us able to test and make decisions fairly quickly.
spk05: And with regards to the guidance, I'd say that in the first quarter, we saw strength on several fronts. We slightly exceeded the high end of our revenue guidance due to strength on ABV and take rate. We've seen... A little bit fewer transactions on a per-customer basis for the newly acquired customers this year. From an LTV perspective, the LTVs of customers we acquired this year seem to be trending to our best ever or close to it. So overall positive, but slightly lower year over year on a transactions per. That could be a mixed thing. That could be individual transactions. getting sick with COVID or service providers getting sick with COVID. That also could be some of the macroeconomic effects. So we think it's appropriate to give the guidance range we give. I say that we are cautiously optimistic about what some of the other travel companies are saying that they're seeing in Q3 and Q4. So that's a reason to be optimistic. But we tend to see that booking your rover sitter is one of the last things you do before your travel. It's less likely to be booked months in advance in the way that flight to Europe might be, for example.
spk02: Yep, makes sense. Thanks for the call.
spk00: Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. Our next question or comment comes from the line of Lamont Williams from Stiefel. Your line is open.
spk11: Hi, thank you for taking my question. Tracy, just first on the extended stay feature, could you just give a little bit more color on how that affected or what was the impact on ADV and overall bookings? And then secondly, on the booking window, Aaron, I know you just said it's about a month. Has that changed at all as we've seen what's happening with bookings over the summer and with this travel? Is that... normalized or did they start to increase a little bit?
spk08: So I think we've talked about as a combination the impact of providers increasing their prices along with the extended day billing feature. That resulted in ABVs being up 31% year over year. The largest piece of that increase was driven by the price per service. Charlie, I don't know if you have any detail on the extended billing feature in terms of the number of nights or the number of units per booking.
spk04: Yeah, Lamont, the way to think about that feature is it allows the provider either at the time of pickup or during the stay itself to extend the stay by up to a half day on a fractional basis. They could, of course, add additional days if the stays get a lot longer, but on a half day basis on a fractional basis. And that really allows for that late pickup or that early drop-off dynamic that might take place when the stays actually take place. So on average, you know, on a fractional basis, it's less than a half to any stay that's on the platform. A half a day, sorry.
spk05: Hi, Lamont. This is Aaron. Good to hear your voice. With regards to the booking window, the booking window is on average, you know, maybe about three weeks right now. The vast majority happen within a month of the intended service delivery, sometimes shorter for our daytime services. That is up versus, you know, the traffic COVID where everything was kind of booked last minute, but it still gives us, you know, visibility into, you the bulk of stuff, you know, within a month and not necessarily super predictive beyond that.
spk11: Okay, great. Thank you.
spk00: Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.
spk05: Well, thank you very much for attending our Q1 earnings call. We are excited about the future of the company. In the quarter, we've made progress on some key priorities for us and are on track to meet our goals for the year. We believe that everyone deserves the unconditional love of a pet, and we look forward to continuing to operate against that mission.
spk00: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
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