Rover Group, Inc. (ROVR) on Q3 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Rover third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. . I would now like to hand the conference over to Brinlea Johnson of The Blueshirt Group. Thank you. Please go ahead.
Brinlea Johnson: Good afternoon. Thank you for joining us to discuss Rover's third quarter 2021 earnings results. In this call, we will be discussing the results announced in our press release issued today after the market close 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 Relations Website shortly after this call. With me on the call this afternoon is Aaron Easterly, Chief Executive Officer and Co-Founder, Brent Turner, COO and Tracy Knox, Chief Financial Officer of Rover. Before I begin, I would like to remind everyone that management will make certain forward-looking statements on this call that reflect our current views and expectations related to our future financial performance such as our 2021 financial guidance, future events and industry and market conditions as well as forward-looking statements about Rover, its platform and market opportunity. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these 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 factors section on Rover's Form-S1 filed with the SEC on September 14, 2021 and in our Form 10-Q to be filed in the third quarter. These forward-looking statement apply as of today and we undertake no obligation to update these statements apply as of today and we undertake 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 present unaudited GAAP and non-GAAP financial measures. We provided information about adjusted EBITDA, a non-GAAP measure and a reconciliation of historical GAAP to non-GAAP measures in the press release we issued after the market closed today which is posted on the investor Relations section of our website. These non-GAAP financial measures provided should not be considered as a substitute for or superior to GAAP financial measures. And with that, let's get started. I will turn the call over to Aaron Easterly, Co-founder and CEO.
Aaron Easterly: Thank you Brinlea. And thank you everyone for participating in Rover's first quarterly earnings call as a public company following the close of the SPAC transaction with Nebula Caravel about on July 30, 2021. We have always believed that Rover was destined to be a public company and we are truly proud to have of accomplished this goal as we began trading on the NASDAQ on August 2, 2021. We have a strong balance sheet with $290 million in cash and are well-positioned to take advantage of our opportunity to be the world's largest trusted marketplace for pet care. For those new to the story, I want to starting by telling you more about Rover and cover our progress this quarter. Then I will turn it over to Brent Turner, our COO, to provide you with more details on our bookings, marketing and operations. A good p0lace to start with the Rover story is understanding our mission. At Rover, we believe that everyone deserves to experience the unconditional love of a pet and we exist to make that possible. Concerns about the logistics of care is one of the primary impediments to pet ownership. I am not home enough. I travel a lot. I work long hours. I don't have a yard. These concerns for caring for a pet are a barrier to people experiencing the joy that is pet ownership. We believe that if we can solve the logistics of pet care, make it trusted, affordable, convenient and high quality, more people will opt into pet ownership. And in addition to increasing our addressable market, we may just move the needle on human happiness. Rover has grown rapidly since inception. During the period of 2014 to 2019, we grew GBV at a 94% compounded annual growth rate. We have had three million households book care on the demand side and over 630,000 service providers paid on the supply side of marketplace. The business is driven mostly by strong repeat booking. Typically, 80% to 90% of our booking on any given month were made by repeat customers and the earn back our marketing is short, approximately one to two quarters. But perhaps one of the most interesting things from our perspective is that the business is mainly about category expansion. Our business is not about standardizing pet care. It's the opposite. Rover is about enabling mass customization in pet care. Every pet, like every human being, is different. Our marketplace caters to those needs. If someone is looking for a provider that allows a dog to sleep on the bed because that's what the dog is used to, they can find that on Rover. If someone's looking for a sitter that's home full time because their dog has separation anxiety, they too can find that on Rover. This ability to customize pet care mass is what makes Rover unique and generally unavailable on. today's commercial options. Our business consists of both overnight and daytime services. Overall, about 70% of our business is in our overnight services. Modern pet parents which span all ages, income brackets and geographies, want an environment where their pets feel at home, feels safe and feels stress free. They want contentment and reassurance that their pets are receiving not just excellent care but the specific care that they requested. Technology helps enable that. Our app enables care providers to share maps of completed dog walks, let people know when they entered and exited the home and gives photo and video updates highlighting activities during the stay. On the supply side of marketplace, pet providers want the flexibility and the empowerment to have pets in their life and make material side income. There is no shortage of animal lovers in the U. S. and in most countries, for that matter. Rover allows people to meaningfully augment their income by doing something that they already love. So we bring together pet parents with pet care providers into the marketplace and the results are phenomenal. 97% of reviewed bookings are five-stars. Before going deeper in how we operate the business, it's worth spending a couple of minutes talking about the pet care industry. We estimate that we service $79 billion market opportunity in the U. S. alone. Currently, only 10% of pet owning households pay for commercial services when leave town. And the reason for that is that many pet parents abhor the idea of taking their animal to a boarding facility. This in-home experience and regular human attention is consistent with the care that they desire for their animals. The pet care industry is becoming universal and about two-thirds of U. S. households have pets. Increasingly, the relationship with people and animals is becoming more akin to a family relationship. In the U.S., about 95% of pet parents consider their pets are can part of the family. So the humanization of pets is becoming the norm. This drives a pet economy that perpetually grows faster than the real economy and is causing people to prioritize in some cases their pet care needs over their own. This is the opportunity that Rover saw at beginning. 90% the opportunity is tied up in the shadow market, the friends, family and neighbors that often perform services when pet parents are away from home. But we can take market share also from existing commercial players. The existing commercial market is incredibly fragmented and largely offline. Because the pet care industry was associated with.com excess, investment in tech in the pet industry lagged other categories for many years. The industry remains less penetrated from a technology perspective even today. Additionally, given the fragmentation of the industry, many of the players do not have a financial incentive to invest in technology infrastructure. This gives Rover unique advantage. It is nearly impossible to book services online for many traditional service providers. Full integration of technology into the power of the pet services business has not happened and it is something the Rover is bringing to bear. Rover is indeed about technology. We use data to create a competitive advantage for our business. With the bookings volume we have going through the platform, we collected tremendous amount of data on the marketplace participants and the needs of our customers. That data is used for many different purposes but one of the most important is to continue to make the marketplace function better, providing better matches for our customers and better experiences. This also creates a powerful network effect. At a high level, the way to think about it is, the more bookings happen on Rover, we collect more data. We understand which pet care providers are most responsive, which ones get repeat business, which ones do a good job pf managing their calendars, which ones are prompt and effective with meeting groups. And as we collect all that data, we get better at understanding who are the ideal matches for pet parents. With that, we can make better matches when people come to Rover and as we make better matches, our bookings go up and then we collect more data and the cycle repeats and our business continues to scale. Which brings me to our third quarter earnings results. As vaccination rates increase and travel restrictions lift, we are seeing strength in North America followed by encouraging recovery in Europe. While our year-over-year comparisons to 2020 shows a dramatic improvement, what is most notable are results relative to pre-COVID levels. Therefore I will compare all Q3 2021 metric to Q3 2019. Q3 was a strong quarter for the business in terms of revenue, GBV and bookings and adjusted EBITDA. Across all key metrics, we exceeded our Q3 2019 performance. Despite the Delta variant of COVID continuing to weigh on our business, GBV was $157 million, up 35% from $116 million in Q3 of 2019. Revenue of $35 million increased 31% from Q3 2019 and adjusted EBITDA improved to approximately $7 million. Revenue growth was driven by total bookings of 1.3 million, up 10% from Q3 2019 as well as increase in average booking values. In Q3, we invested in our product and engineering efforts to improve our customers' experience at the platform. As a result, we recently rolled out two of the most requested features from providers, tipping and extended care. 100% of the tips go straight to the pet care providers, increasing their earnings and allowing pet parents to incrementally recognize the quality care given to their pets by the provider. Extended care gives providers the ability to charge for partial days during overnight stays. We also invested in the infrastructure by transitioning to strive for payout in the U.S. to match the rest of our global footprint we are continuing to implement strike for payouts to make it easier and quicker for providers to access their funds. The feedback has been very positive and we anticipate completion in the next six months. Given that they trust and safety is at the heart of what we do, we also continue to make investments in this area as well. And we aren't just a dog people. We are the pet people. Cat related bookings are scaling quickly, increasing 79% over Q3 2019. In October, we have dramatically increased our cat specific content to help drive additional organic customer acquisition. We believe the opportunity in the cat care market expands well outside of U.S. borders. Looking ahead, we are optimistic about Rover's future prospect with multiple strong tailwinds. First, the shift from offline to online is meaningful because of our substantial lead in the marketplace. Second, the increase in pet ownership and deeper emotional bonds will drive growth in the pet industry generally. Third, we believe that the services segment of the pet industry will outgrow physical product noticeably over the next decade. And finally, we believe further recovery in the leisure travel market is likely to happen over time. And now I would like to hand over the call to Brent, our COO, to provide more detail on our bookings and operational performance.
Brent Turner: Thanks Aaron. As you noted, the third quarter has been a record setter across many important metrics. To further highlight this reality, I would like to walk through the exciting trends we are seeing in new customer acquisitions and our cost of acquisition. In Q3, global new customer acquisitions increased to 259,000, up 32% compared to Q3 2019 and the distribution of these customers across services roughly mirrored our normal historical mix. While we acquired the vast majority of our new customers in the United States, we did see a customer acquisitions begin to grow again in Canada relative to 2019, roughly correlated to the increase in vaccination rates. While new customer growth in Europe was flat with 2019, we did see acceleration in the U.K. and Southern Europe during September as lockdowns began to abate. We are not sure that this momentum will continue and we expect a dynamic situation in Europe that we will be monitoring. Our overall cost of customer acquisition including, both free and paid channels, remain quite efficient at $10 compared with $36 in 2019 and only up $1 from Q2 2021. We attribute this efficiency to the durable strength of our organic channels, primarily word of mouth and free search listings even as we increase our paid marketing spending. We believe that this strength is further evidence of the tail winds we expect in new customer acquisition as the pandemic eases. Further while we remain committed to discipline in marketing to acquire new customers, we do expect to continue to increase spending as we invest carefully into the pandemic recovery. While we are excited by Rover's strength in new customer acquisition in Q3, we are also pleased with the marketplace performance in driving repeats. For the first time ever, Rover drove over one million bookings from repeat customers in a single quarter in Q3, up 6% compared to Q3 2019. While our momentum in new customer acquisitions drove the ratio of repeat customers to new down to 80% in Q3 compared to 83% in Q3 of 2019, we believe this ratio highlights the future potential of our existing customer base to return as the marketplace continues to scale and this ratio climbs back to historical norms. A our topline has recovered over the past few months, we have continued to stay laser focused on serving our customers while managing our cost structure to effectively scale with the business. Operations and support, which is primarily made up of our frontline customer experience and trust and safety teams, has done an amazing job meeting the bookings demanded great cost control. We anticipate the need to continue to grow these teams and we recently announced that we plan to open a contact center in San Antonio, Texas to complement our existing location in Spokane, Washington. We will continue to make strategic investments in these areas to ensure that we are providing the best possible customer service a the marketplace continues to scale. And with that, I will turn it over to Tracy to talk more about the operations and our financial results.
Tracy Knox: Thanks Brent. I will begin today by providing an overview of our financial results for the third quarter, followed by guidance. Unless noted otherwise, I will be comparing our third quarter results for the third quarter of 2019, a more relevant comparable period than 2020 due to the impact of the global pandemic. Starting with revenue. Revenue in the third quarter was $35.2 million, up to 165% from the prior year and up 31% over 2019 while Q3 gross booking value increased 35% to 157.1 million. The increase in GBV was by a strong average bookings value of $124, compared with almost 1.3 million total booking from 602,000 active, each up 2%, 10% and 21% respectively. We attribute most of the ABV change to increases in pricing by our care providers however a small amount of this change is also due to a take rate increase that we implemented for new customers that we acquired since January 2021. As a reminder, GBV and deferred revenue are recorded at the time of booking while revenue is recognized upon the actual start of the stay or day time service. Depending on the quarter and holiday timing, this can result in a quarterly timing difference for GBV and revenue. Therefore, we believe it is helpful to track our recognized take rate which is defined as revenue plus the change in deferred revenue divided by GBV. Our recognize take rate was 21% in Q3, down 90 basis points when compared to 2019. The slight decline was driven by the increase in cancellation rate from 9.6% in Q3 2019 to 15.3% in Q3 2021 correlated with the uptick in COVID cases to the Delta variant. Moving on to expenses. Cost of revenue with $8 million or 23% of revenue compared to $6.5 million or 24% of revenue in the prior period. Marketing expenses were $6.4 million, down 55% while our new customers actually increased 32% over the third quarter of 2019. As Brent mentioned, we have seen strength in our organic marketing channels, primarily word of mouth and free search listings. As a result, our marketing has remained very efficient at 18% of revenue compared to 53% of revenue in Q3 2019. Operations and support expenses decreased to $4.2 million or 12% of revenue while product development expenses decreased to $5 million or 14% of revenue. These expenses have decreased as we have continued to leverage our improved cost structure after streamlining the business in early 2020. G&A expenses increased $8.9 million, primarily due to an increase in public company staffing and professional services as well as the $700,000 increase in insurance expense related to be expanded coverage needed as we transitioned into a public company. Additionally, general and administrative expenses included approximately $1.3 million of professional services related to non-capitalizable one-time merger related costs. In the near term, we expect our operating expenses excluding stock compensation and one-time costs related to the Nebula Caravel merger to increase slightly as a percentage of revenue as we, one, fully utilize our scaled operations team from Q3 for a full quarter to better support increased activity throughout the seasonally strong holiday period and beyond, two, invest in product and technology to further enhance our marketplace and three. continue to drive more marketing campaigns in our paid channels and through top of funnel testing. Additionally, we expect improved leverage in cost of revenue as a percentage of revenue related to the relatively fixed amortization of internally developed software and we expect G&A to remain roughly flat as a % of revenue as we operate as a public company for a full quarter. Moving on to other income and expenses. We did have some unusually large non-cash expenses during the quarter. Following the close of the transaction with Nebula Caravel on July 30, we accounted for the change in the fair value of the earnout and warrant liabilities associated with the merger. This change in fair value of $83.6 million flows through other expenses during the period resulting in a total net loss of $84.5 million compared to a net loss of $12.1 million in Q3 2019. Without these non-cash fair value charges, our Q3 net loss would have been approximately $1 million. Looking forward, the first two tranches of the earnout liabilities have been triggered and the earnout liabilities will now be reclassed into equity during Q4. The remaining warrant liability will continue to be mark-to-market each quarter with gains and/or losses flowing through other income and expense. Adjusted EBITDA was $6.6 million, up significantly from negative $8.2 million. The improvement in adjusted EBITDA resulted from the strong revenue during the quarter paired with ongoing operational expense efficiency. With the completion of our business combination referred to earlier, we added approximately $240 million of net cash to our balance sheet. After paying off all of the debt facilities, we ended the quarter with $290 million in cash and cash equivalents on our balance sheet. Now turning to guidance. We are raising the midpoint of our full year 2021 revenue and adjusted EBITDA guidance ranges. We now expect revenue of $106 million to $110 million compared to the previous range of $102 million to $110 million. This implies fourth quarter revenue in the range of $34 million to $38 million, a 34% increase over Q4 2019 at the midpoint. In terms of adjusted EBITDA, we now expect a range of $6 million to $9 million compared to the previous range of breakeven to slightly positive. This implies a fourth quarter adjusted EBITDA range of $1 million one to $4 million. Overall, the pandemic has persisted longer and varied more than we had originally anticipated at the start of the year and continues to bring uncertainty in the near and medium term. And as a result, our guidance anticipates slightly elevated cancellation rates relative to 2019. In summary, we are very excited about the growth in the business, its healthy financial trajectory and the opportunity in front of us. That concludes our prepared remarks. I will now turn the call back to the operator to take questions.
Operator: . Your first question comes from the line of Maria Ripps with Canaccord.
Maria Ripps: Great. Congrats on the strong results and thanks for taking my question. First, is there anything you can share around demand trends in different markets across the country? And also, can you talk about what are you seeing in your international markets? I think you mentioned Europe is improving. Is the pace of reopening sort of different across some of your internet geographies?
Aaron Easterly: Yes. So we have seen different pace in recovery and re growth across all geographies, both within the U. S. and outside the U. S. In general, we have seen that Europe has had a more aggressive public health policy stance which has caused a delay in kind of the markets rekindling. But at the vaccine rollout happened, we saw some of those markets to see positive growth in customer acquisition as well.
Maria Ripps: Got it. Thank you. And just a quick follow-up. I think you mentioned that you anticipate slightly elevated cancellation rates relative to 2019. Can you just talk about how you are thinking about that cancellation trends in Q4 compared to Q3?
Tracy Knox: Sure. Thanks Maria. So in Q3, the cancellation rate was just over 15% and in the second quarter, if you recall it was around 12%. So we are expecting that our Q4 cancellation rate will come somewhere in the middle of those numbers, of course, assuming that the pandemic doesn't worsen during the next month or so.
Maria Ripps: Got it. That's very helpful. Thank you.
Tracy Knox: Thanks.
Operator: Your next question comes from the line of Andrew Boone with JMP Securities.
Andrew Boone: Hi guys. Thanks for taking my questions. My question is kind of on a similar line. As we think about kind of the use cases for 3Q, can you just go through kind of overnight bookings versus whether you are saying anything with return to work as more offices go back? Can you just talk about how are people using the service today? And then I have a follow-up. Thank you.
Aaron Easterly: Sure. We generally have seen a relatively consistent service mix that we have seen in the past, maybe a slight exception with dog walking. We typically see dog walking as seasonally low as summer travel spikes and t there we see more overnight. It may have been a tad lower than we have seen in past years in terms of service mix but not wildly so. In general, the use cases are consistent with what we have seen historically.
Andrew Boone: Okay. And then question number two on marketing. It came in a little bit lower. And clearly $10 is just a fantastic CAQ that you guys are putting up. Can you talk about why not spend into the opportunity there today? If we think about 4Q and kind of the increased marketing and again in 2022 with a ton of new pet owners that are now available, like why push on profitability today versus reinvesting that in a more aggressive marketing spend? Thanks so much.
Brent Turner: Hi Andrew. This is Brent. I appreciate the question. We are increasing marketing spend and we done it more quickly in channels like search affiliates and things that, in marketing parlance, are considered lower funnel. We did pull back things like video, social, app marketing that are often harder to measure, harder to quantify and where the risk of the pandemic makes them a little harder to get read on from a measurement standpoint and from a testing standpoint. We didn't feel good about it. But we are easing back down on those again.
Tracy Knox: This is Tracy. I would just add that we are not optimizing for driving the adjusted EBITDA number. We are just trying to be very thoughtful about returning investment into marketing spend and our other line items as well. So we are continuing to ramp up in the product development area to drive improvements to the marketplace. And I think we ran a little bit light ops and support in Q3. And so now we have a fuller team there that will utilize for the holiday period and beyond.
Andrew Boone: Great. Thank you so much.
Aaron Easterly: Yes. Thank you. I guess I would jump in and say one more thing about that. Our internal constructs are unit economics. Really, it's a marketing channel level not merely considerations about the overall financial performance.
Operator: Your next question comes from the line of Lauren Schenk with Morgan Stanley.
Unidentified Analyst: Thank so much. This is Meghan on for Lauren. So the outlook contemplates an increase in paid marketing. Can you talk about some of the puts and takes of this increased marketing spend or CAQ in 4Q as well as whether you are seeing any impact from IDFA?
Brent Turner: Thanks for the question. Go ahead.
Aaron Easterly: Okay. I will take the IDFA question and then pass it over to Brent for comments on marketing. We haven't seen much of an impact on that. I think, historically, if you look at our marketing mix on the channels that are more likely to be heavily impact on that, we are just not super dependent upon those channels. So it could be more of an issue go forward but hasn't been a big thing for us historically due to our channel mix and our strong organic customer acquisition. Brent, do you want to take the other question.
Brent Turner: Right on. Think you. As we move into Q4, as we said in the previous question, we will begin pushing harder as we get better reads on our channels like video, social, app marketing and things that fall more into the category development and creation bucket versus strict customer acquisition. But we will follow our unit economic constructs in deciding how those are going and deciding how to scale every spend.
Tracy Knox: Yes. And I would just add, we also model it as a percentage of revenue. And we have we have said longer term, we expect marketing as a percentage of revenue will be around 25%. As you can see, it was just 18% in the third quarter. And so as Brent said, we will continue to move up to top of funnel which will increase that marketing spend as a percentage of revenue.
Unidentified Analyst: Great. Thanks so much. And my second question is more about behaviors in new customers acquired thus far in 2021 and how they may have differed from pre-2021 cohort?
Aaron Easterly: We are generally seeing that the cohorts of that we have acquired this year best ever. And I say generally because it's just about every single month and those months that may not be technically a record or very close to it. So we are very excited. It's quite possible that the Delta wave also suppressed those numbers a little bit. So they could have been even better. So we feel great about the customer acquisition overall and the economics attached to it based on a go forward basis.
Unidentified Analyst: Great. Thanks so much.
Operator: Your next question comes from the line of Ralph Schackart with William Blair.
Ralph Schackart: Hi. Good afternoon. Thanks for taking the question. First question, just curious just in terms of the highest new bookings that you saw in the quarter. Any way you could sort of give a high level perspective or parse out the drivers? How much of that was just really strong growth of pet ownership that peoples added during COVID I guess compared to just pent-up demand and people want to get out again? Just would love your high level thoughts on that. And then I have a follow-up.
Tracy Knox: Well, I would to break down the highest a new bookings into two categories. First, we have the highest new customers ever which was at 259,000 of those bookings and then we actually had the highest repeat booking volume as well. And so actually probably maybe Brent can speak to the new customers and Aaron can talk about repeat customers and behavior.
Brent Turner: Sure. We have seen strong efficiencies out of our paid marketing but the biggest indication that this is pent-up demand with some increased pet ownership is the strong performance of our organic and word of mouth channels. It's an indication for us of the tailwinds that we expected to see coming out of the pandemic. And so that does feel it skews in that direction.
Ralph Schackart: Great. And just a follow-up just on some of your newer services such as grooming. I know it's real early and you are testing it. Just curious how that's going maybe be relative to your expectations?
Brent Turner: I think with grooming, we have been very excited about the opportunity to solve some pet parents pay points. And the feedback on the demand side of that offering has been very positive. That being said, we are not excited about the possibility of scaling the business overall and the profitability attached to that. So we expect to be looking at alternatives to solving those customer pain points in the future.
Ralph Schackart: Okay. Thank you.
Operator: Your next question comes from the line of Tom White with D.A. Davidson.
Unidentified Analyst: Thanks so much. This is , on for Tom. Two, if I may. The first one, I was wondering, I understand you are probably not in the position to provide any formal guidance for 2022 yet. But we are hoping if you could kind of walk us through of how to think about the seasonality next year? It seems like maybe your business could return to a more traditional seasonality? Just curious to see what's you are really thinking on that front. And then I have a follow-up question.
Brent Turner: I would say, we just help out. You would be nice for humanity if the pandemic was eventually put in the rear view mirror. With regard to 2022, we are working at our plans right now and we look forward to updating you in a future quarter. 2021 has been just a lot better than we thought, even with that wave of Delta. And so that's very exciting. But as Tracy mentioned, the pandemic is not over and it's been longer and more varied than we had thought when we put our plans in place at the beginning of the year. That been said, looking past the short term gyrations of the pandemic, we expect 2022 and beyond to be great years for us and by far our best ever. And primarily we look at the strength and that customer acquisition on an absolute level. We are looking at the repeat performance of those new customers which are generally they are best ever and the overall efficiency by which we are operating the business. And if anything, our optimism on the medium and long term has improved versus where we are at the beginning of the year. We are just very excited about what the future has in store. On the seasonality, just to give a little bit of a sense of what we have historically seen. We have a high growth business. So you kind of have to untether the underlying growth from the seasonal dynamics. Most of our business is tied up in travel seasonality. Travel seasonality really has a couple of peak periods with the biggest been the summer travel season, then around key holidays such as Thanksgiving and Christmas. The way that has traditionally played out for us is that we see that Q1 is roughly flat to Q4 the prior year. Q1 is not a high point in seasonal travel. Then we see a step-up to Q2. You start to see some summer bookings coming in June and maybe even for Memorial Day. We see another step-up for Q3 which captures a large portion of summer travel. And then historically, I will say another step-up to Q4 with Thanksgiving and Christmas. And then Q1 again is flat roughly to that Q4. So we would expect Q1 to be by far the seasonally lowest and then stepping up from there.
Unidentified Analyst: Great. Thank you. That also sort of leads into my next question because we have heard from some of our online travel companies that we cover about strong growth in longer duration trips by travelers due to the pandemic, like people can work from anywhere. So we are wondering what that dynamic mans for your business? And whether it creates any increased risk of pet owners and providers taking transaction off the platform?
Aaron Easterly: Let me try and these are part to two different questions there. The first is with regards to changing working dynamics and what that may mean for travel and remote work. I think in general, it's a little too early to say but we generally think that the more people work from home, the more that they are going to want to leave their house and the more they are going to want to travel. And since the vast majority of our business is in the overnight segment, we think that's probably a positive for our business overall but could effect the TAM for daytime services such as dog walking if people work from home more often. But overall, we think it's probably net positive. With regards to dis-intermediation, we have seen average booking values go up. And with higher average booking values and a take rate model, there may be some risk of additional dis-intermediation. That being said, our cohorts have been performing the best ever. So to the degree to which that's in fact commuted and outweighed by the other really positive developments in the marketplace. Our approach to dis-intermediation has always been a combination of two things. How do we add more and more value by continuing to transact through the platform. We have a Rover guarantee. We have a calendar with 24/7 support. We have tools that make it easier to send photos and videos if you go through the platform. And as we mentioned, we also added tipping and extended stay. Things that are, if done through the platform, actually results in more pay going to the service provider and can be somewhat awkward to try and do offline, for example asking for a tip, maybe make it less likely to happen. So we think that we can continue to add more and more value by going through the platform. And then second strategy has been to use data science to help us identify and reward great behavior. I mean we have been in this business for 10-plus years now and our cohort have generally improved over time as we use data science to identify good actors and good behavior. We generally expect us to get smarter and smarter about that as we collect more data. So while higher average booking values may create additional risk, at this point in time we are not particularly worried about that dynamic affecting our business results.
Unidentified Analyst: Great. Thanks so much for taking the questions.
Aaron Easterly: Sure.
Operator: Your next question comes from the line of Lamont Williams with Stifel.
Lamont Williams: Hi. Good afternoon. You mentioned an increase in pricing by providers. Are you seeing that in any particular regions or services? And what are you expecting for supplier pricing going forward? Do you think this trend will continue or ultimately level off?
Aaron Easterly: I would say, we have generally seen it relatively correlated with cost of living. So as the cost of living in certain markets go up, providers tend to charge a little bit more. There are some micro-dynamics as well where people after they establish a great reputation, have a lot of reviews may also increase their prices. And so we view that as generally a positive thing. I think we have wanted to be competitive historically relative to the traditional commercial options. But part of the ABV is the price per night but part of it other factors as well. So we generally expect that prices, on a per unit basis, to drift up in line with cost of living or inflation.
Lamont Williams: Okay. Thank you. And then just on the booking window. Are you saying that expand or shrink at all as we kind of start to come out of or get further into the recovery?
Aaron Easterly: I think if you go back over the past several quarters, we have generally seen a normalization of that. The current booking window is right about 16 days which is relatively in line with our historical norms. During that scariest times of the pandemic in terms of people changing their behavior, we saw that shrink quite a bit. Is additional waves roll through, that might shrink again as people delay making decisions until they get a sense of their own risk levels. But we are close to the historical norms now.
Lamont Williams: Okay. Great. Thank you.
Operator: . Your next question comes from the line of Robert Mollins with Gordon Haskett.
Robert Mollins: Aaron, do you think you have the pricing power to bring that 2015 cohort up to where take rates are today? If so, why not pull that lever now? And then sticking with take rates, do you think you have incremental pricing power on the 2016 in your cohorts? And then I have a follow-up.
Aaron Easterly: Well, I think we operate in a competitive market more broadly speaking. There is friends, family and neighbors kind of represent the bulk of the opportunity. We are always very thoughtful around what we do on take rates. And historically I think that the move that we have made on take rate were very positive and produced additional value for our investors. And so we will continue to look at that. With regards to the really early cohorts, we have grown pretty fast. And what that means is that if you go back to pre-2016, 2017, it's largely immaterial. Those cohorts were just a lot smaller than they are now. So we could decide to do a change there. But any type of change may be disruptive to a loyal group of customers and it's a smaller portion of our business given the rate at which customer acquisition has grown. I think when we started this back process we said we had you know about two million or a little bit over two million customers have used. We now have over three million. So it kind of gives you a sense of the rate of the accumulative base. And if you go back in the early days in the cohort, it could sometimes be counted on fingers in terms of number of people meet monthly cohort if you add enough people in the room. So it's a good question but probably not our biggest area of focus in terms of driving incremental value.
Robert Mollins: Got it. And then, Tracy, on the tipping. Is that included in the gross booking value? And if so, how should we think about that impacting take rate.
Tracy Knox: It is not.
Robert Mollins: It's not, okay.
Tracy Knox: It is not. We excluded it. It's just a straight pass through, yes.
Robert Mollins: All right. Thank you.
Operator: That does complete the Q&A portion of today's call. Now, I ill turn the call back over to Aaron for closing remarks.
Aaron Easterly: Well, thank you everyone for the great questions and for listening to our quarterly earnings. We remain excited about the strong tailwinds in this business. And if anything, our optimism is increasing. We look forward to giving you updates on how we progress in the coming quarters. And again thanks for your time.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
