Vacasa, Inc. (NASDAQ:VCSA) Q1 2024 Earnings Call Transcript May 10, 2024
Vacasa, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Aaron and I will be your conference operator today. At this time, I would like to welcome everyone to Vacasa Q1 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Ryan Domyancic, Investor Relations. Ryan you may go ahead.
Ryan Domyancic: Good afternoon, everyone, and thank you for joining us for today’s call. I’m pleased to be joined today by Vacasa’s CEO, Rob Greyber; and CFO, Bruce Schuman. We have posted a shareholder letter on the Investor Relations section of our website at investors.vacasa.com and will be referenced by our speakers. Comments made during this conference call and in our letter contain forward-looking statements. Such statements include those about future expectations, beliefs, plans, projections, targets, estimates, objectives, events, conditions and financial performance, including guidance for future period results. We caution you that various risks and uncertainties could cause actual results to differ materially from those in our forward-looking statements.
For additional information concerning these risks and uncertainties please read the forward-looking statements section in the shareholder letter we issued earlier today and the forward-looking statements and risk factors section in our filings with the SEC. During this call we may refer to various non-GAAP financial measures. Information regarding our non-GAAP financial results including a reconciliation of our 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 intended to supplement but not substitute for performance measures calculated in accordance with GAAP. And now, I will turn the call over to Rob Greyber.
Rob?
Rob Greyber: Thanks Ryan, and thank you everyone for joining us this afternoon. I’ll be giving some opening remarks and commentary on the business. Bruce will follow with a review of first quarter financial results and then we’ll open that up for Q&A. For well over a year, we have been working to transform Vacasa into a more efficient, high performing organization, one dedicated to exceptional service for our owners, our guests and the people who serve them. We’ve actioned a variety of improvements across the business and I’m proud of the team’s progress to date. We remain on that transformation journey and in the midst of an unexpectedly ongoing challenging industry environment, we continue to evaluate opportunities to optimize our business model and shareholder value.
I shared with you on our last call that 2024 got off to a difficult start. The short-term rental industry continues to adjust to softening economic demand for domestic nonurban vacation rentals, as well as increases in the supply of short-term rental units. The year began with bookings variability and started off slowly then showed some signs of stabilization. However, over the last several weeks which are some of the key weeks for summer bookings, it has become clear that the bookings weakness we saw at the start of the year is likely to persist through the remainder of 2024. These trends are putting real pressure on our revenue per home and profitability. With difficult industry dynamics continuing, we are accelerating the business transformation that is already underway to further empower and enable our local teams with the goal of strengthening our business model.
Today, we are reorganizing the way we operate by further equipping our field teams to locally manage and be accountable for their markets, and we are significantly reducing our central corporate footprint. We believe that empowering our local teams will drive the strongest impact on the homeowner and guest experience, which in turn should result in better business outcomes. As an organization, we believe we must embrace a more local business model and double down in the way we manage our portfolio of vacations homes at the market level. Directing our resources to local teams and to the process that bring the most value to our owners and guests will allow us to better support our focus on profitability and free cash flow. Our field teams will be organized and equipped to run their operations in their markets as we further localize functions including sales, onboarding, revenue management, and marketing.
For example, we are transitioning our individual sales approach to be directed by our local teams, leveraging their local expertise and giving them end-to-end ownership of the homeowner relationship. Homeowners trust our local teams with the care and maintenance of their vacation homes and the experiences their guests have in these homes. Furthermore, our local operations teams know their markets best and are therefore best positioned to identify homes and homeowners who are a good fit for our service models. The homeowner experience from onboarding to welcoming guests in their homes is most seamless when our local teams guide them through that journey. As we move to empower our local teams, we are also refining our corporate footprint, sharpening our focus on what is best needed to support those teams.
This also allows us to significantly reduce our corporate overhead costs with the goal of becoming profitable in the future. We are also shifting our technology strategy to focus even more on ensuring that we have the tools that increase efficiency and improve the experience for our owners and guests and the team members who support them. This focus will guide what technology we invest in internally and externally and will allow us to take greater advantage of step function improvements in industry third party applications. The actions we have announced today will result in a reduction of our overall headcount by about 800 people or 13% of our workforce. While a difficult decision, we determined it was necessary to accelerate the transformation of our business given the current industry dynamics.
Reductions were aligned with our strategy to prioritize resources for the local market teams in the field. On the corporate and central operations side, we eliminated approximately 40% of roles across all functions. In comparison, we reduced field team positions by approximately 6%. While we are making some adjustments in the field, they are relatively small compared to our overall field cost base and designed to maintain service levels to owners and guests even as we adjust to changing market conditions. There’s significant work ahead of us to drive the success of this transformation. It will not be easy and will require precision in execution, but we believe we have the right team in place to implement these important steps in our transformation.
The business will be much lighter from an expense perspective and we believe better positioned. I’m confident we are making the right strategic decisions to allow the business to reach its full potential. I’d now like to pass it over to Bruce to discuss our first quarter results.
Bruce Schuman: Thanks, Rob. I’ll start by reviewing our first quarter results, then provide some additional details on the business transformation Rob just outlined. Unless noted otherwise, I will be comparing our first quarter results to the first quarter of 2023 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 nights sold and gross booking value per night sold was $427 million down 18% year-over-year. Nights sold were $1.3 million in the first quarter, down 12% year-over-year. Gross booking value per night sold was $340 in the first quarter, down 7% year-over-year.
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 data team constantly evaluate the tradeoff 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 first quarter with average gross booking value per home declining by about 15% year-over-year. We finished the first quarter with approximately 41,000 homes on our platform down from approximately 43,000 at the end of the first quarter last year, 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 night sold. 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 $209 million in the first quarter, down 18% year-over-year. Now turning to expenses. Cost of revenue was 50% of revenue in the first quarter versus 48% of revenue in the same period last year. Cost of revenue in dollars declined by 14% year-over-year compared to a 12% decline in nights sold.
Operations and support expense was 28% of revenue in the first quarter versus 23% of revenue in the same period last year. Operations and support expense dollars were up 1% year-over-year. In terms of our other operating expenses, sales and marketing expense, which includes the fees we pay our third-party distribution partners declined 12%. Technology and development expense was up 7% and general and administrative expenses declined 2%. Adjusted EBITDA was negative $36 million for the first quarter compared to negative $12million in the same period last year. Despite progress on our expense reductions, adjusted EBITDA continues to be affected by bookings variability impacting nights sold, gross booking value per home and ultimately revenue.
As Rob indicated, we are experiencing unexpected continued bookings weakness in terms of both price or gross booking value per night sold and utilization or nights sold per home as we approach our summer peak. While January started off slowly, we saw an uptick in bookings intakes in February. However, over the last few weeks as the summer booking curve has come into view more clearly, we have seen both the number of bookings and the price at which those bookings are made come in below our initial expectations. This weakness is translating into lower revenue and in turn lower adjusted EBITDA and we must take action. We’ve been on a transformation journey over the past year with the local markets making or influencing more of our business decisions.
Given the industry backdrop, we now expect to face throughout 2024, we must accelerate this transformation. While this carries execution risks, we believe that further empowering our local teams and reducing our corporate cost structure is the right decision to optimize our business model and shareholder value. As part of the restructuring announced today, we are reducing our headcount by about 800 employees or 13% of our total workforce, with the largest impact to our corporate teams as Rob noted. We expect these adjustments to provide over $50 million of cost savings in 2024 and over $12 million on an annual run rate basis. The in-year cost savings are expected to be largely realized in the third and fourth quarters with meaningful reductions anticipated across our technology and development, sales and marketing and general and administrative expense lines.
At this point, it remains difficult to provide guidance for 2024. The ongoing industry dynamics and their impact on bookings variability, 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. While the changes we have announced today are expected to reduce our cost structure for 2024, given the current revenue dynamics, we don’t market conditions, the variability around the timing of our bookings build into the summer peak season and as we are executing on our corporate transformation, we have taken the prudent step of drawing about $80 million under our revolving credit facility to supplement our liquidity. With that, Rob and I will take your questions.
Operator, please open up the lines.
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Q&A Session
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Operator: [Operator Instructions] Our first question is from the line of Jed Kelly with Oppenheimer. Your line is live.
Jed Kelly: Hey, great. Thanks for taking my question. Just on the local market strategy, should we anticipate that you’re going to kind of focus on the markets where you have a higher density and you can drive more profitability and maybe, I don’t know, unload some of the contracts where you don’t have as much density or are generating as much profitability? Thank you.
Rob Greyber: Hey, Jay, thanks very much. Appreciate the question. So look, for the past year, we’ve been on this journey of transforming the business. We’ve been looking as part of that work closely at where we can do more to empower, to enable our local teams to drive more of the business. We see opportunity as we’ve been executing as a team to improve service for our owners, service for our guests and our financial results. We think we demonstrated that as we move through the year in 2023. There is some opportunity to focus more in some markets over others, but really it’s more about sort of how we are allocating capital and what we are seeing in terms of higher velocity or lower velocity sales progress in some markets, for example.
So we don’t have a lot more to share about those pieces, but it’s something that we certainly are mindful of. We’re lucky to have a market footprint that we think is very attractive and encouraging going forward, but these are industry wide dynamics and so we’re wanting to be very sensitive to that and to make sure that we’re gearing the business in the right way for what’s ahead.
Operator: Our next question comes from the line of Ben Miller with Goldman Sachs. Your line is live.
Ben Miller: I guess following up on that, with the headcount reductions more focused at the corporate level than the local market level and having decisions now pushed to be more locally managed. Can you give any color on what local market economics look like? In other words, what would a local market P&L or contribution margin look like today before layering on the corporate costs and what that says about the incremental scale you might need to offset those corporate costs to get back to profitability? Thanks.
Rob Greyber: Yes, appreciate that question. When we look at our markets, we’ve been doing a lot of work as you know through the last year to drive better not just better performance but better awareness, better feedback loops, better reporting for the local market teams on how their businesses are performing, what the remaining potential is. This is really about continuing that work. This is something that we’ve pulled forward in the timing of the way we’ve been executing it, but something we’ve been working on for a long time. I think that there’s a lot of opportunity in sharpening the incentives in the work that we are that we’re enabling our teams to do out of their silos and in a more kind of coordinated and aligned way locally.
So maybe Bruce can comment on the cost structure. We haven’t shared a lot about how we do our reporting and kind of management internally, but maybe he can share a little bit more about what we put in contribution margin and how we think about that?
Bruce Schuman: Yeah. Thanks, Rob. Yes, Ben, one way to think about it, if you look at our cost structure, roughly our cost of revenue number one and then secondly our operations and support costs, if you put those together, they primarily represent our local market costs. That’s about 70% of our cost structure, broadly speaking. So as we really lighten our corporate overhead cost load, I think we’re going to really be able to unlock more of the inherent value associated with those local markets.
Operator: Our next question comes from the line of Doug Mankoff with J.P. Morgan. Your line is live.
Doug Mankoff: Hey, this is Dave for Doug. Thanks for taking the question. So thinking of the theme of shifting some of the roles here in local market, it sounds like your field team will need to wear many hats going forward. So just wanted to make sure, like could you explain like what kind of confidence that they can take on more responsibilities and perhaps roles — perhaps activities that require different skill sets and be successful and is this something that is more temporary or do you think this is more or do you think this is more like a permanent change that will work in the future as well?
Rob Greyber: Yes. So when we look at the transformation of work that we’ve been doing, this has been something that, as I mentioned just a moment ago, we’ve been working on for a long time. So this is not about — this is not about a change that we have been contemplating for just a moment, but rather something we’ve been moving toward and as we’ve shared with you, transforming the business toward over a period of months quarters. The skill sets of the team — in my experience when I’ve been out in the field talking with owners and talking with our teams, where we operate best is on some level where our sales teams know what the ops teams want to manage and serve and where the operations teams know where sales should go and build relationships and to the extent that we can do more and more to try to formalize those relationships, to try to break down the silos that sort of would keep those teams apart to align their incentives, that’s really where we see and we believe there’s a real opportunity for the business to unlock a next level of performance, but there’s a lot of work to do to get it done.
The teams are excited to make that happen, and we believe that, that is the best way for us to serve our owners and our guests and the people that take care of them as we go forward.
