Vacasa Inc (VCSA) 2022 Q4 法說會逐字稿

Good afternoon, and welcome to Vacasa's Fourth Quarter 2022 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to Ryan Domyancic, Investor Relations. Thank you. Please go ahead.

Good afternoon, everyone, and thanks for joining us today for Vacasa's fourth quarter 2022 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 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, strategies, targets, estimates, objectives, events, conditions and financial performance. We caution [you] 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. 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 hand the call over to Rob Greyber. Rob?

Good afternoon, everyone, and thank you for joining us. I'm pleased to be here with you all today to share an update on how we are positioning Vacasa for success, review our fourth quarter financial results and finally, provide an outlook on 2023. It's been nearly 7 months since I joined Vacasa. In that time, I familiarized myself at the business and worked with leaders across the organization on developing Vacasa's go-forward strategy. Through my learnings and interactions, my conviction in Vacasa's potential has only increased. I firmly believe that Vacasa's current business model providing full-service vacation rental management is the right one when combined with innovative technology and consistent execution.

Vacasa's rental management offering addresses a large and growing market opportunity here in the United States with more than 1.5 million whole homes listed on our major channel partners. And over time, there is the opportunity to deploy our solution in international markets. Managing vacation homes is best done when combining outstanding people, robust processes and innovative technology. Our scale as the largest vacation rental manager in the United States uniquely allows us to design and invest in technology-driven solutions, resulting in a differentiated experience for homeowners and guests. We also have the opportunity to learn from our scale. In the past year, we facilitated over [6 million] nights sold, equating to nearly 1.5 million reservations.

That means we have over 1 million opportunities each year to test, learn and iterate on the best approach to pricing a reservation, cleaning a home and interacting with guests. This is a massive advantage relative to others in the industry, and we expect the benefits to Vacasa to continue to compound over time. And then the most exciting part to me is there are only a handful of other companies even attempting to win in this market at scale. In order to capitalize on the opportunity ahead, we must execute across all facets of our business, but we have a lot of work to do across the organization to get there.

Over the past few years, the team was operating in a hyper-growth environment focused on facilitating record reservations and home growth on our platform. Today, we are operating in an environment that is more dynamic relative to the prior 2 record years. While I'm optimistic about Vacasa's long-term potential, I see challenges, which are fixable, but not yet fixed. Our priorities are shifting to improving our efficiency and further developing our processes to deliver an unmatched experience for our homeowners and elevated hospitality for our guests.

We are refining our local market operations, individual sales approach and product road map. We believe all of this work will further our competitive advantage, but it will take hard work and time. As a result, 2023 will be a transition year for Vacasa to set us up for long-term measured profitable growth in the future. When I spoke to you last November, I outlined my initial 4 priorities, which were ruthlessly 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 products.

During the past 4 months, we have made progress against all 4, but there is still work to do. As you know, in January, we undertook a significant workforce reduction as we reviewed our business and refined our plan to put us on a path to adjusted EBITDA profitability. We made the difficult decision to reduce our headcount by approximately 1,300 employees, representing about 17% of our workforce. On the corporate side, we reduced approximately 300 positions with the majority in our sales and marketing function as we reduced the number of sales executives and teams associated with our portfolio program. We also reduced approximately 1,000 field positions across the more than 500 destinations in which we operate.

During the past 2 years, we ramped up our local market staff to stay ahead of home and reservation growth we were experiencing. As the industry exits this period of record growth, we are focused on calibrating our staffing levels to business needs and driving efficiencies in our local market operations while continuing to deliver excellent service to our homeowners and guests. I'm pleased with the initial progress we've made on housekeeping and field operations, but we need to maintain the improvements as we head into our busier peak season. In February, I appointed T.J. Clark as the new Chief Commercial Officer to lead the sales team. T.J. has a similar role at TurnKey, and he will be responsible for improving our individual sales approach. The sales team went through huge changes over the past 2 years, including more than doubling in size. As we prioritize profitability even at the expense of growth, we believe it makes sense to reevaluate their focus and how they are working to optimize productivity and improve performance.

Following our workforce reduction, we now have approximately 350 sales executives versus the approximately 425 we employed at the end of 2022. In addition, we are also winding down our real estate brokerage services in the second quarter of this year, which generated about $20 million of revenue and negligible profit in 2022. In February, we welcomed Harish Naidu as the new Chief Product and Technology Officer. Harish has a strong technology background, having spent more than 20 years at Microsoft and 7 years at Accolade, a health care technology company.

In terms of the product road map, in the year ahead, the team will largely be building and adding functionality to tools used to support internal teams and processes. We are highly focused on improving our execution across the company and the right tools and products are instrumental in helping us achieve our operational goals while delivering a differentiated superior service to homeowners and guests. Going forward, we will continue to invest in the business, local market operations, technology and our sales executives, but these investments will be sized appropriately and driven by business needs.

I mentioned we welcomed T.J. Clark and Harish Naidu to the leadership team to help us execute across these 4 priorities. Additionally, we brought on Rebecca Boyden to serve as our new Chief Legal Officer; and Manu Sivanandam to serve as Vacasa's new Chief Marketing Officer. Rebecca comes to Vacasa having led aspects of the legal function at both large and small technology companies. Manu has experience in marketing strategy, operations and financial leadership, including at the online travel company, Orbitz. Each of these executives bring significant and directly relevant experience from across the technology and online travel landscape, and I'm excited about the leadership team we've assembled.

In closing, 2023 will be a year of transition for Vacasa, but I remain excited about the opportunity ahead. Yes, it will take time, but we are making these decisions to firm up the foundation of our business, which we believe sets us up for long-term profitable growth.

Now I'll turn the call over to Jamie to review our fourth quarter results and provide some additional commentary on 2023. Jamie?

Thanks, Rob. First, I'll take a few minutes to review our fourth quarter financial results, where revenue and adjusted EBITDA finished ahead of our guidance. Then I'll spend some time reviewing our 2023 outlook. Unless noted otherwise, I will be comparing our fourth quarter results to the fourth quarter of 2021, 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.

We finished 2022 with approximately 44,000 homes, up 19% year-over-year. For the fourth quarter, gross booking value, which is the combination of nights sold and gross booking value per night sold reached $416 million, up 10% year-over-year. Nights sold were [1.1 million] in the fourth quarter, up 5% year-over-year, with the increase primarily driven by the addition of new homes to the platform. Gross booking value per night sold reached $363 in the fourth quarter, up 5% year-over-year. Remember, there is a strong relationship 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 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 $218 million in the fourth quarter, up 14% year-over-year and above our guidance range of $195 million to $215 million. During our third quarter earnings call in November, we noted some softness in variability in guest bookings that began after the strong summer season. There was some stabilization in the second half of the quarter, albeit at a lower level versus our expectations in the fall.

Now turning to our expenses. Cost of revenue was 53% of revenue in the fourth quarter versus 56% of revenue in the same period last year. Operations and support expense was 30% of revenue in the fourth quarter versus 27% of revenue in the same period last year. You'll recall these 2 expense lines, which primarily consist of our local market and customer support costs were higher than our expectations during the third quarter. As we look out into the fourth quarter, we were concerned how the recent variability in bookings could impact revenue and in turn, our ability to scale down local market resources to appropriate levels that match guest demand.

During the second half of the quarter, bookings finished near the high end of our expectations, and we were able to scale down our costs more quickly than we anticipated. Technology and development expenses were down 1% year-over-year. Sales and marketing expenses were down 26% or $17 million year-over-year as we lap the large-scale brand advertising campaign we ran in the fourth quarter last year. General and administrative expenses were up 7% year-over-year, largely due to hiring to support the increasing scale of our business and the requirements associated with being a public company.

Adjusted EBITDA was negative $49 million for the fourth quarter, above our guidance range of negative $75 million to negative $65 million. Better bookings combined with our ability to drive efficiency in the local market operations faster than expected resulted in the beat versus our expectations. One last note on the results. Following the decline of our share price in November and December, we tested our goodwill balance for impairment and took an impairment charge of $244 million in the fourth quarter. The carrying amount of our goodwill following the impairment is $585 million. As a reminder, our goodwill is primarily related to our strategic and portfolio acquisitions.

Now turning to our outlook for the year ahead. As Rob touched on in his remarks, we are in the process of making changes to prioritize profitability and position the business for long-term success. These changes, along with the current industry dynamics introduce uncertainty into our results and make providing explicit guidance for 2023 difficult. First, while the overall travel industry remains strong, there is uncertainty within our vertical, whole homes in U.S. leisure markets following 2 record years of traveler demand. We continue to plan for average gross booking value per home to decline year-over-year in 2023, but we are months away from the start of peak season, so it's still too early to know exactly how the year will play out.

Second, as Rob mentioned, we also need time to optimize the individual sales approach. The reduction in the size of our sales force and adjustments to the sales strategy will affect our home growth. Additionally, we began experiencing some higher levels of churn in the fourth quarter that have persisted into 2023. Based on owner feedback and the timing of the chart, we believe at least part of the increase is due to owner revenue normalizing off of the record highs our industry has experienced over the past few years, which is not unique to Vacasa. In fact, we believe that our ability to generate homeowner income outperforms the industry in most of our markets. We are taking steps to inform owners of this dynamic and appropriately set expectations for the year ahead.

Finally, while the initial progress on improving our local market operations has been positive, we need to build on that progress, especially during our peak season in the second and third quarters. We are focused on making the improvements to the business day-by-day, quarter-by-quarter, but it will take time. With that in mind, we are focused on execution in 2023 and striving to achieve slight adjusted EBITDA profitability for the year while maintaining the homeowner and guest experience. Given our focus on profitability, we believe full year 2023 revenue will likely decline by a low double-digit to high single-digit percentage year-over-year, primarily driven by our assumed reduction in gross booking value per home versus last year, our reduced investment in our portfolio programs, the wind-down of our real estate brokerage services and lapping the recognition of future stay credits in 2022.

Excluding the headwinds from the wind-down of our real estate brokerage services and the effect of the 2022 future stay credits, 2023 revenue will likely decline by a high single-digit to mid-single-digit percentage year-over-year. This outlook is highly sensitive to changes in gross booking value per night sold, nights sold and the number of homes on our platform, and we will continue to reevaluate as we gain greater visibility into peak season. As we sit here today, we would expect first quarter revenue to be in the range of $230 million to $240 million. However, we continue to see variability in booking patterns and continue to experience severe weather in our key markets, which may impact these numbers.

For adjusted EBITDA, we would expect losses in the first quarter to be roughly similar in magnitude to the first quarter last year, excluding the $15 million benefit from future stay credits. We are providing first quarter guidance, given how close we are to the end of the period. We do not plan on issuing explicit quarterly guidance going forward, given we will be announcing earlier in future quarters, and we are still adjusting to the emerging booking patterns as the industry comes off 2 record years.

With that, Rob and I will take your questions. Operator, please open up the line.

(Operator Instructions) Thank you. Our first question comes from Jed Kelly from Oppenheimer.

Great. Great. Just going back on supply churn or owner churn, can you kind of talk about the dynamic that's going on there? I mean, is this losing properties to other managers that are more local or is this a function of more managers saying, hey, I think I can do this myself, can you talk about what's going on there? And then can you just give us some visibility on if there's potential like further cost cuts or do you think this is onetime in nature?

Great, Jed, thanks for the question. Appreciate it. So first, on churn, we began to see higher levels of churn as we move through the fourth quarter. And that's a trend that we saw -- we've seen continue into the first quarter. We've seen those levels of churn that basically coincided with some trends in the industry around bookings growth, and we see that kind of cited in some of the surveys and follow-ups that we have around homeowner revenue as a reason for churn.

So when we look at it, we see that clearly there's an opportunity to do some more education in our part, and we've been doing that. Couple of thoughts there. First, based on industry sources, while the industry seems to be normalizing after 2 record years, based on the data sources that we see, the vast majority of the homes on our platform are actually outperforming that industry, and we're working on communicating that more clearly and more consistently to our owners. So we're taking a higher-touch approach here with owners, letting them know kind of setting those expectations, what their income levels should be, this may be down on a year-over-year, what we're doing in response to those market dynamics.

And again, we don't see that across the vast majority of our markets as being anything related to what Vacasa is doing. We have a very strong revenue management team, and we have delivered and continue to work to deliver above-average income performance for our owners, we need to get that message out there. To your point on the broader dynamics, I think this is something that the industry is competing with. There's not a lot of data out there. But based on the conversations we've had across the industry, we believe others are experiencing this kind of level of frustration as bookings for homes, for owners' homes come off the record highs that the industry had experienced.

And Jed, I can take the second question. So look, we believe that we have set ourselves up well. We do not have plans to do any further cuts. We're obviously prioritizing profitability and took the actions that we did in January with the reduction in force, and we're seeing some positive results in our local operations metrics as a result of that. So obviously, more time to come, and we need to continue to execute and make progress as we go into the peak season. But again, no major cuts planned at this point in time.

And then just a quick follow-up. I think in the industry, we've seen some models with maybe a lower commission rate, lower touch still grow pretty well organically. I mean, do you think about offering like a lower commission option to sort of keep people or how do you think about balancing commission rates with property growth?

Yes. I mean we're pretty responsive in the markets that we operate in and our sales teams are always working with owners to strike that balance. So we've been quite flexible pricing to the value that we provide and also making sure that we're able to work with owners and meet them where they are.

Our next question comes from Doug Anmuth from JPMorgan.

So I just wanted to ask -- I know that T.J. and Harish are probably like a month in, Rob, or maybe not even that far yet. But just curious if you could talk a little bit about some of the changes or the direction that you think perhaps the sales approach and tech and product need to go, like how those could kind of evolve going forward, that would be helpful?

Yes. Thanks for that. I think that -- I think, first of all, I'm delighted to have -- delighted to have T.J. leading the growth motions for the business. We're lucky to have a deep bench of leaders to call on leaders like T.J. and others across Vacasa. Recall, T.J. was a Founder of TurnKey, a Co-Founder of TurnKey and knows the industry very, very well. He's a proven growth leader. He's maintained deep relationships within the industry, and he's been very committed to the Vacasa team and to our vision.

He's got a broader track record across the online travel landscape and the roles that he's held. So look, we're focused on making the changes that we made to be successful. We think T.J. has the industry experience, [well respected within] the organization, clear plans to focus the team in our efforts and as well as a great core of leaders under him to work with. Similarly, Harish is a gifted technology leader. He's built solutions in the B2C and the B2B space. And I think his customer-focused, his customer-centric mindset is really going to help us to build on the advantage that we've created at Vacasa for the long-term.

Our next question comes from Eric Sheridan from Goldman Sachs.

Maybe 2 questions, if I can. First, following up on Doug's question about the sales approach. Is there a way that we should be thinking about normalized growth of supply away from this transition year, so sort of elements of what you're trying to solve for in terms of a sales force size and what it can contribute in terms of property growth on an annualized basis, so we can better understand sort of the normalization you might be trying to solve for there? That's number one.

And then number two, on the local execution and sort of aligning local costs with growth dynamics, can you give us a sense of how far along that process you are? And how should we be thinking about elements of improved cost structure on the local operations side that you could still unlock as you look out over the next 12 months to 18 months?

Yes. I can take [those, you got] anything in, feel free.

Yes. Go ahead.

In terms of the home growth, so there's a few variables here to think through, Eric, as we look at [2023] specifically. One is that we talked about that we would be meaningfully reducing our portfolio spend this year. Second is that obviously, we did the reduction in force, which Rob mentioned in the prepared remarks that did impact the sales organization by about [75 folks]. In turn, there are ongoing changes to the individual approach, right? We have new leadership. We're working on putting new processes in place and unlocking productivity.

And then finally, there's the element of this recent elevated churn that we have been seeing, again, tied to rates and revenue in the ecosystem, doing what we tend to communicate with owners. But at the same time, we've also communicated that our expectation is that gross booking value per home will continue to be down throughout the course of this year. So where does that all net us out? I think there's a range of outcomes that we have put into the guide.

I think that there is on the low end, the possibility that in 2023, we could see that home count declines on a year-over-year basis, on kind of a longer-term run rate, I'd say that we kind of have to give ourselves a little bit of time to see what we're able to do on the individual sales approach, right, with T.J.'s leadership with these new processes, I think we feel very positive that, that we'll be able to make some progress there. But I think that's -- it's too early to make a call there on kind of the longer term. In terms of the local costs, so in Q4, we underwent an exercise where we really scrutinized the business.

We looked at it market by market. And we took action in Q4, where we were able to staff down to demand a little bit quicker than we had anticipated in the guide in early November. And also just managing hours really aggressively, making sure that we didn't have people staff too much based on reservation volume or units in what we needed in the market. This also helped to inform the reduction in force that we did in January and really, again, optimizing for service levels. So that was a major step taken.

As we look forward at additional efficiencies, I'd say that those probably are going to -- we'll continue to manage around optimizing service levels, looking at market levels and making sure that, that staffing is optimized. But I think the bigger unlocks can come from the product development that Rob mentioned is largely going to be focused on the efficiency of our local teams and our sales teams. So I'd say too early to give any meaningful update there, but that's really what the technology team is focused on.

(Operator Instructions) Our next question comes from Mike Grondahl from Northland Securities.

Guys, this is Owen on for Mike. I was just wondering if you can provide any color on how spring break bookings may be performing, if this has any indication for summer performance?

Yes, absolutely. So look, kind of on the whole spring break is coming together well. I'd say similar trends that we're kind of seeing overall in the broader business. In that, one, we are seeing that gross booking value per home come down, which is a combination of the bookings per average home or nights sold per average home and the gross booking value per night sold. So the other dynamic that we're seeing here is that there have been fewer last-minute bookings made. We've been able to drive bookings earlier in the curve very effectively, but optimizing price in order to capture that, which is resulting in that dynamic that I just mentioned.

So hard to say exactly what is driving the trend. I think it's just kind of the overall ecosystem that is a bit in flux within our specific sector of the market. But that's kind of what we're seeing for spring break, and I'd say that's consistent with the reading the early tea leaves as we look forward, but there is still a lot of time to come before we get into peak season.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.