Rover Group, Inc.

Thank you for standing by, and welcome to the second quarter 2022 Rover Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question at that time, please press star-one-one on your phone or telephone. As a reminder, today's conference call is being recorded. I would now like to introduce your host, Mr. Walter Ruddy, Vice President of Investor Relations and Capital Markets. Please go ahead.

Good afternoon. Good afternoon. Thank you for joining us to discuss Rover's second quarter 2022 earnings results. In this call, we will be discussing the results announced in our press release issued today after the market closed, which is available on our investor relations website at investors.rover.com. As a reminder, this call is being webcast live from our investor relations website and is being recorded and will be available for replay from our investor relations website shortly after this call. With me on the call this afternoon is Aaron 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, this call identified by the words expect believe will may assume continue plan ongoing and similar expressions forward-looking statements are based on the current expectations estimates forecasts and projections and beliefs and assumptions of management and relate to our future financial performance such as our third quarter 2022 and full year 2022 financial guidance trends for gap and non-gap marketing expense as a percentage of revenue, marketing investments and initiatives, COVID and macroeconomic impacts, investment and expansion opportunities, market share, other future events, and 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, uncertainties, and assumptions, that could cause actual or results or performance to differ materially from those expressed or implied in the forward-looking statements. We strongly encourage you to review the 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 first quarter 2022 10-Q filed with the SEC on May 12, 2022, and those that will be disclosed in our second quarter 2022 Form 10-Q. These forward-looking 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 forward-looking 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 the non-GAAP measures to the most comparable GAAP measure in the non-GAAP reconciliation supplement, which is posted under news 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 Q2 2022 metrics to Q2 2021 metrics in the call. And with that, let's get started. I'll turn the call over to Aaron Easterly, co-founder and CEO. Aaron? Thank you, Walter, and thank you, everyone, for joining us today. I will begin by discussing our high-level second quarter 2022 earnings results, give a few of the quarter's highlights, and then provide some commentary on what we are seeing in the market right now. At that point, I will turn it over to Brent to provide you with more details on our bookings and investments. Tracy will then conclude by walking through the financials and our detailed guidance before we take questions. Overall, Rover had another solid quarter, improving both revenue and adjusted EBITDA. Despite the impact from COVID variants and other potential macro headwinds, the business exceeded the high end of our guidance range. Second quarter revenue of $43.4 million was up 77% year over year. Gross booking value grew 59% to $212.8 million. Total bookings were up 35% to $1.4 million. And adjusted EBITDA was $4.2 million, which was a 68% increase year over year. Going beyond the recent financial results, we're excited about certain underlying fundamentals. First, the value of customers acquired this year is the highest to date. Despite the relatively lower mix of daytime services, revenue per customer, less the cost of revenue and support, are trending higher than the 2021 cohort, which were also well above our historical norms. In Q2, repeat bookings reached 1.2 million, up 40% year over year. Our 10 years of data collection, insights, and technology investments helping identify and reward great interactions on the platform. And this is showing through in our customer LTV. Second, the strength of our value proposition relative to competitors continues to shine. In addition to posting strong top and bottom line numbers, we believe that we are continuing to gain noticeable share in our largest markets. For example, according to third-party US data, Rover had more than 13 times the sales of pet services versus the next largest similar player for the 12 months ending June 30th, up from just over 10x for the prior 12-month period. Third, our international business has continued its aggressive growth trajectory, with GBV increasing to over 3.5 times Q2 2021 levels, and has driven the mix of GBV from non-U.S. markets from 3% in Q2 of last year to 8% this quarter. This growth is due to rapid expansion of customer acquisition, with Canada and the UK being the largest contributors. One particular bright spot is our penetration into European cat households. Over the last year, we made a series of investments designed to bring more European cat parents onto our platform. We have seen that pay off. Cat-only GPV in Europe was nine times the prior year period. More broadly, we see opportunities to invest incrementally in markets such as France and Spain. Our international business leverages much of the technical and data science investments we have made to support the U.S. business. And as such, we expect it to not only be a cost-effective driver of long-term enterprise value, but to also compete effectively versus smaller players that have been unable to invest comparably. Finally, we saw marked progress in laying the groundwork to expand beyond our current services. Robert has a unique position in the ecosystem, which we believe creates opportunities for us to solve a greater array of pain points for modern pet parents. While most of our focus over the last year was scaling our core business, our newly formed corporate strategy and development team has been looking at opportunities to build, buy, or partner to expand our offerings. For example, we recently acquired a small early stage dog training platform. Overall, we expect to invest low single-digit millions of dollars in the remainder of the calendar year to prototype and test extensions to our offering. We plan to share more on this front in the coming quarters. While we delivered a strong second quarter and continued to gain market share, we're also seeing some signs for caution in the back half of the year. What we have observed as the quarter unfolded and continuing into July positions us towards the lower end of our previously communicated full-year revenue guidance. During the second quarter and continuing through July, cancellation rates have accelerated after initially dropping materially in February. In July, cancellation rates were roughly 50% higher than the historical norms and are approaching the levels we saw in July and August of last year during the Delta wave and January of this year during the Omicron wave. Additionally, we are seeing some evidence of a slowdown in new customer category demand. The Google query volume for some keywords is decreasing year-over-year compared to the outside gains of 2021, though still significantly above the 2019 levels. Similarly, we've noticed a slowdown in the year-over-year growth rates for U.S. air passengers. Most of these dynamics are consistent with trends in our marketplace. Out of our desire to balance growth and profitability, we significantly slowed our hiring starting in Q2 and are adjusting our marketing outweighs. In conclusion, we just reached the anniversary of entering the public market, and it's worth reflecting on the last 12 months. In that time, we increased revenue approximately 130% over the prior 12 months, slipped from negative to positive adjusted EBITDA, gained market share, all while ramping our investments in product support and marketing to drive long-term enterprise value. It has been a good 12 months. We look forward to growing our position as the world's largest online marketplace for pet care, and continuing in our mission to make it possible for everyone to experience the unconditional love of a pet. We will look for and execute an opportunity to expand our business judiciously and with the macroeconomic backdrop in mind. And now I would like to hand over the call to Brent to provide more details on our bookings, operational performance, and marketing spend.

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 Q2. As Aaron mentioned, total bookings increased 35% year-over-year to 1.4 million, another all-time record quarter for Rover. With that being said, we observed increasing headwinds, especially toward the end of the quarter and during July, as cancellation rates rose and new customer demand softened. In Q2, worldwide new customer acquisitions were 260,000. an increase of 14% from Q2 2021 when we saw an incredibly strong rebound in pent-up organic new customer demand. Our non-US business also grew its acquisition of new customers nicely with the largest absolute numbers coming from Canada and the UK and with similarly impressive growth rates from the rest of Europe. In Q2 2022, non-GAAP marketing expense was 24% of revenue. of 600 basis points from Q2 2021 and roughly sequentially flat from Q1 2022. This percentage was toward the top end of our previously mentioned long-term and seasonally adjusted range of 18 to 25%. The higher Q2 percentage compared to 2021 was driven by an increased cancellation rate, higher search spend, and ongoing testing of marketing channels. With respect to marketing testing, We upgraded our ROI measurement during the pandemic with a particular focus on the return on video, social, and similar channels. As we have mentioned previously, we plan to increase marketing spending as we evaluated both the efficiency and scalability of these channels. We are pleased with the results of our testing from Q1 and Q2, and we like their implications for our ability to drive efficient new customer acquisitions over time. However, Based on our observations in June and expectations through Q3, we believe that the macro environment, inclusive of COVID impacts, in the second half may not be conducive to scaling these investments at this time. As a result, for the second half, in the context of our current revenue expectations, we expect marketing as a percentage of revenue to trend lower. While we continue to make progress in our new customer marketing initiatives, we are also pleased with our repeat bookings which were 1.2 million for Q2, a year-over-year increase of 40%. As discussed last quarter, we continue to leverage our CRM channels as a cost-sufficient way to invite our existing customers back to the platform. Further, we continue to invest in product and customer experience. Our ongoing work includes improvements to the usability of our apps and testing new ways to improve our platform's ability to create great matches between pet parents and care providers. We are particularly excited about a number of recent improvements in our trust and safety capabilities. For example, we have introduced notifications that encourage walkers and sitters to be mindful with breeds susceptible to heat-related issues when temperatures rise. We believe by continuously improving our product and service, pet parents and sitters will find increasing values in the Rover offering. We are pleased with the results of our investments to date and the strength of our results this quarter. Rover continues to execute well, attracting new customers and building scale. I'll now hand the call over to Tracy to walk through our financial performance.