VACASA, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. As a result of many factors, such as those set forth under the "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" sections and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes. Discussion regarding our financial condition and results of operations for the year endedDecember 31, 2021 , including 57 -------------------------------------------------------------------------------- Table of Contents comparisons with the year endedDecember 31, 2020 , is included in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 21, 2022 . Overview We are the leading vacation rental management platform inNorth America with over six million Nights Sold in the fiscal year endedDecember 31, 2022 . Our integrated technology and operations platform is designed to optimize vacation rental income and home care for homeowners, offer guests a seamless, reliable and high-quality experience, and provide distribution partners with a variety of home listings. As a vertically-integrated property manager, we act as an agent on behalf of our homeowners, which allows us to avoid the capital limitations of owning the underlying real estate. We manage all aspects of the vacation rental experience for homeowners, from listing creation and multi-channel distribution to pricing, marketing optimization and end-to-end property care. We collect nightly rent on behalf of homeowners and earn the majority of our revenue from homeowner commissions and service fees paid by guests and from additional reservation-related fees paid by guests when a vacation rental is booked directly through our website or app or through our distribution partners. We also earn revenue from home care solutions offered directly to our homeowners, such as home improvement and repair services for a separately agreed upon fee and from providing real estate brokerage services and residential management services to community and homeowner associations. Our listings are predominantly exclusive to us, and we are able to capture nearly all of the bookings for properties on our platform and a greater portion of each transaction. Since our inception, we have focused primarily on the supply side of the market and on growing our homeowner base. Booking channels such as Airbnb,Booking.com , and Vrbo have historically had more focus on the demand side of the market and collectively drive hundreds of millions of site visits each month. Through our integrated technology and operations platform, we unlock new supply and increase the availability of vacation rental home listings for guests to discover and book. Our comprehensive set of capabilities, enabled by technology, is designed to remove barriers to renting vacation and second homes by solving critical challenges for homeowners, such as listing creation and merchandising, pricing optimization, multi-channel distribution and demand generation, home care, insights and analytics, smart home technology, and customer support. We have a multi-pronged supply acquisition strategy, which includes expanding the number of vacation rental properties listed on our platform through individual additions, portfolio transactions and strategic acquisitions. Our individual approach onboards individual vacation rental properties through our direct sales force. We utilize proprietary and industry data, along with marketing and advertising strategies, to maintain a homeowner lead database and strategically deploy our sales representatives to target these new homeowner leads. We engage in portfolio transactions and strategic acquisitions to onboard multiple homes in a single transaction. Our portfolio approach identifies, targets and onboards portfolios of homes already being professionally managed by local property managers. We have also completed strategic acquisitions consisting of our acquisitions of Wyndham Vacation Rentals and TurnKey, both of which contributed to our supply growth. Portfolio transactions and strategic acquisitions are accounted for as business combinations. We will continue to selectively review portfolio and strategic acquisitions, but expect to meaningfully reduce the amount of capital we allocate to such programs. Homeowners on our platform typically enter into standardized, evergreen contractual arrangements withVacasa and pay us a commission rate on rent to support the services we provide for them. The homes on our platform are generally exclusive toVacasa , meaning that every booking for these homes must be coordinated throughVacasa . We generate bookings by distributing our vacation rental home listings to guests through our direct channel, which includes vacasa.com and our mobile app, and across online distribution channels, including Airbnb,Booking.com , and Vrbo. In fiscal years 2022, 2021, and 2020, we generated approximately 30%, 30%, and 35%, respectively, of our GBV through our vacasa.com website and our mobile app and 70%, 70%, and 65%, respectively, of our GBV through our distribution partners. Our guest acquisition strategy for our direct channel is focused on attracting high intent visitors to our platform through search engine optimization, direct traffic, email, and performance marketing channels. When bookings occur through our distribution partners, we pay listing fees for demand generated through these channels. We deploy local operations teams across the over 500 destinations in which we operate. In some cases, an operating market encompasses more than one destination. These operations teams are critical to our vertically-integrated business model and our ability to attract and onboard new homeowners, deliver a differentiated experience to homeowners and guests, including managing home care, maintenance and support through a single team. 58 --------------------------------------------------------------------------------
Table of Contents Recent Developments Workforce Reduction Plan OnJanuary 23, 2023 , the Board of Directors of the Company approved a workforce reduction plan (the "Plan") designed to align the Company's expected cost base with its 2023 strategic and operating priorities. The Plan includes the elimination of approximately 1,300 positions across the Company, in both its local operations teams and central teams, representing approximately 17% of the workforce. The Company estimates the aggregate pre-tax costs associated with the Plan to be approximately$5 million , primarily consisting of severance payments of approximately$4 million and employee benefits and related costs of approximately$1 million . The Company expects to incur substantially all of these charges in the first and second quarter of 2023. All of these costs will result in future cash expenditures. The Company expects the reduction in force to be substantially complete by the second quarter of 2023. The estimates of costs and expenses that the Company expects to incur in connection with the Plan are subject to a number of assumptions, and actual results may differ materially.
Leadership Updates
OnAugust 22, 2022 , the Board of Directors of the Company appointedRob Greyber as Chief Executive Officer, effectiveSeptember 6, 2022 .Mr. Greyber succeededMatt Roberts who ceased serving as the Company's Chief Executive Officer, effectiveSeptember 6, 2022 .
On
Additionally, several other individuals have joined our leadership team
throughout
Reverse Recapitalization
OnJuly 28, 2021 , we entered into an agreement to become a publicly traded company through a business combination withTPG Pace Solutions Corp. , a special purpose acquisition company. OnDecember 6, 2021 , we consummated the business combination contemplated by the business combination agreement. The transactions set forth in the business combination agreement are further described in Note 3, Reverse Recapitalization to our consolidated financial statements.
TurnKey Acquisition
OnApril 1, 2021 , we acquired the operations ofTurnKey Vacation Rentals, Inc. ("TurnKey"), a provider of property management and marketing services for residential real estate owners inthe United States . The acquisition of TurnKey advanced our strategy to create a premium standard for vacation rentals. The acquisition also increased our market density in certain regions and expanded our footprint into several other top vacation rental destinations. See Note 4, Acquisitions to our consolidated financial statements.
Impact of COVID-19 on our Business
Since early 2020, the world has been impacted by COVID-19. In an attempt to limit the spread of the virus, governments imposed various restrictions, including stay-at-home orders and travel advisories, most of which have been lifted. While COVID-19 and measures to prevent its spread have impacted our business in a number of ways, we believe that these impacts have largely diminished.
The full extent to which the COVID-19 pandemic will directly or indirectly
impact us over the longer term remains uncertain and dependent on future
developments that cannot be accurately predicted at this time, such as potential
new strains and variants of the virus and their severity and transmission rates,
the extent and effectiveness of any containment actions, including mobility
restrictions, the timing, availability, and effectiveness of vaccines, and the
impact of these and other factors on travel behavior in general and on our
business. We have incurred and will continue to incur additional costs to
address government regulations and the safety of our employees and guests.
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Seasonality
Our overall business is seasonal, reflecting typical travel behavior patterns
over the course of the calendar year. In addition, each market where we operate
has unique seasonality, events, and weather that can increase or decrease demand
for our offerings. Certain holidays can have an impact on our revenue by
increasing Nights Sold on the holiday itself or during the preceding and
subsequent weekends. Typically, our second and third quarters have higher
revenue due to increased Nights Sold. Our Gross Booking Value ("GBV") typically
follows the seasonality patterns of Nights Sold. Our operations and support
costs also increase in the second and third quarters as we increase our hourly
staffing to handle increased activity on our platform in those periods. See
additional information about GBV and Nights Sold under the "Key Business Metrics
and Non-GAAP Financial Measures" heading below.
Results of Operations
The following tables set forth our results of operations for the periods
presented and as a percentage of our revenue for these periods. The period to
period comparisons of our historical results are not necessarily indicative of
our results that may be expected in the future.
Year Ended December 31,
2022 2021 2020
(in thousands)
Revenue $ 1,187,950 $ 889,058 $ 491,760
Operating costs and expenses:
Cost of revenue, exclusive of depreciation and
amortization shown separately below(1) 564,373 440,753 256,086
Operations and support(1) 264,068 186,984 116,192
Technology and development(1) 68,344 48,709 27,030
Sales and marketing(1) 247,167 187,904 79,971
General and administrative(1) 107,624 88,835 57,587
Depreciation 21,706 17,110 15,483
Amortization of intangible assets 61,629 44,163 18,817
Impairment of goodwill 243,991 - -
Total operating costs and expenses 1,578,902 1,014,458 571,166
Loss from operations (390,952) (125,400) (79,406)
Interest income 1,991 36 385
Interest expense (2,576) (31,723) (7,907)
Other income (expense), net 60,410 3,280 (5,725)
Loss before income taxes (331,127) (153,807) (92,653)
Income tax benefit (expense) (1,022) (784) 315
Net loss $ (332,149) $ (154,591) $ (92,338)
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(1) Includes equity-based compensation as follows:
Year Ended December 31,
2022 2021 2020
(in thousands)
Cost of revenue $ 1,025 $ 113 $ -
Operations and support 5,931 2,574 252
Technology and development 5,733 3,032 641
Sales and marketing 5,554 8,270 372
General and administrative 15,927 12,989 2,084
Total equity-based compensation expense $ 34,170 $ 26,978 $ 3,349
Year Ended December 31,
2022 2021 2020
Revenue 100 % 100 % 100 %
Operating costs and expenses:
Cost of revenue, exclusive of depreciation and
amortization shown separately below 48 % 50 % 52 %
Operations and support 22 % 21 % 24 %
Technology and development 6 % 5 % 5 %
Sales and marketing 21 % 21 % 16 %
General and administrative 9 % 10 % 12 %
Depreciation 2 % 2 % 3 %
Amortization of intangible assets 5 % 5 % 4 %
Impairment of goodwill 21 % - % - %
Total operating costs and expenses 133 % 114 % 116 %
Loss from operations (33) % (14) % (16) %
Interest income - % - % - %
Interest expense - % (4) % (2) %
Other income (expense), net 5 % - % (1) %
Loss before income taxes (28) % (17) % (19) %
Income tax benefit (expense) - % - % - %
Net loss (28) % (17) % (19) %
Comparison of the Years Ended
Revenue
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except percentages)
Revenue $ 1,187,950 $ 889,058 $ 491,760 $ 298,892 34 %
Our revenue is primarily generated from our vacation rental platform in which we
generally act as the exclusive agent on the homeowners' behalf to facilitate the
reservation transaction between guests and homeowners. We collect nightly rent
from guests on behalf of homeowners, and earn the majority of our revenue from
commissions on rent and from additional reservation-related fees paid by guests
when a vacation rental is booked directly through our website, app, or through
our distribution partners. We also earn revenue from home care solutions
provided directly to our homeowner, such as home
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maintenance and improvement services, linen and towel supply programs,
supplemental housekeeping services, and other related services, for a separately
agreed-upon fee.
In the event a booked reservation is cancelled, we may offer a refund or a
future stay credit up to the value of the booked reservation. In certain
instances, we may also offer a refund related to a completed stay. We account
for refunds as a reduction of revenue. Future stay credits are recognized as a
liability on our consolidated balance sheets. Revenue from future stay credits
is recognized when redeemed by guests, net of the portion of the booking
attributable to funds payable to owners and hospitality and sales taxes payable.
We estimate the portion of future stay credits that will not be redeemed by
guests and recognize these amounts as breakage revenue in proportion to the
expected pattern of redemption or upon expiration. Through December 31, 2021 , we
did not recognize any breakage revenue associated with future stay credits, and
no future stay credits had yet reached their expiration date. For the year ended
December 31, 2022 , the Company recognized breakage revenue of $16.0 million , of
which $11.1 million related to expirations that occurred during the first
quarter of 2022 and $4.9 million related to actual and expected breakage
associated with future stay credits expiring in later periods.
In addition to our vacation rental platform, we provide other offerings such as
real estate brokerage services and residential management services to community
and homeowner associations. The purpose of these services is to attract and
retain homeowners as customers of our vacation rental platform. We expect to
wind down our real estate brokerage services by the second quarter of 2023.
These brokerage services represented approximately 2% of total revenue for the
year ended December 31, 2022 . We will continue to retain real estate brokerage
licenses, where required, in order to facilitate our property management
services.
Revenue increased by $298.9 million , or 34%, for the year ended December 31,
2022 , compared to the year ended December 31, 2021 , primarily driven by an
increase of $300.7 million , or 36%, in our vacation rental platform revenue,
including $16.0 million related to the recognition of breakage revenue
associated with future stay credits. The increase in vacation rental platform
revenue was mostly driven by a combination of more Nights Sold and higher GBV
per Night Sold in the year ended December 31, 2022 , compared to the year ended
December 31, 2021 . Nights Sold increased 20%, primarily due to the increase in
the number of homes added to our platform through our individual sales approach
and portfolio additions during or after the year ended December 31, 2021 ,
including as a result of our acquisition of TurnKey in 2021. GBV per Night Sold
increased by 11%, primarily due to optimization of rates and fees, as well as
the mix of homes rented on our platform.
Cost of revenue
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except percentages)
Cost of revenue $ 564,373 $ 440,753 $ 256,086 $ 123,620 28 %
Percentage of revenue 47.5 % 49.6 % 52.1 %
Cost of revenue, exclusive of depreciation and amortization, consists primarily
of employee compensation costs, which include wages, benefits, and payroll taxes
and outside service costs for housekeeping, home maintenance, payment processing
fees for merchant fees and chargebacks, laundry expenses, housekeeping supplies,
as well as fixed rent payments on certain owner contracts. Cost of revenue also
includes costs associated with our real estate brokerage services and
residential management services to community and homeowner associations. We
expect to wind down our real estate brokerage services by the second quarter of
2023. These brokerage services represented approximately 3% of total cost of
revenue for the year ended December 31, 2022 .
Cost of revenue increased by $123.6 million , or 28%, for the year ended
December 31, 2022 , compared to the year ended December 31, 2021 , primarily due
to a $66.6 million increase in personnel-related expenses related to
housekeeping, a $46.5 million increase in expenses related to our home care
solutions and home supplies, and a $9.6 million increase in payment processing
costs.
We expect that cost of revenue as a percentage of revenue may fluctuate from
period to period depending on the number of Nights Sold, Gross Booking Value per
Night Sold, and our ability to realize operational efficiencies.
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Operations and support
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except percentages)
Operations and support $ 264,068 $ 186,984 $ 116,192 $ 77,084 41 %
Percentage of revenue 22.2 % 21.0 % 23.6 %
Operations and support costs consist primarily of compensation costs, which include wages, benefits, payroll taxes, and equity-based compensation, for employees that support our local operations. The costs also included the cost of call center customer support, rent expense for local operations, and the allocation of facilities and certain corporate costs.
Operations and support costs increased by$77.1 million , or 41%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , primarily due to a$71.6 million increase in personnel-related expenses in our field operations, central operations, and customer experience teams, primarily driven by increased headcount. We expect that operations and support costs as a percent of revenue may fluctuate from period to period depending on the number of homes we manage and the number of destinations we operate in, the number of Nights Sold, and our ability to realize operational efficiencies. Technology and development Year Ended December 31, 2021 to 2022 2022 2021 2020 $ Change % Change (in thousands, except percentages) Technology and development $ 68,344$ 48,709 $ 27,030 $ 19,635 40 % Percentage of revenue 5.8 % 5.5 % 5.5 % Technology and development expenses consist primarily of cloud computing, software licensing and maintenance expense, and costs to support infrastructure, applications and overall monitoring and security of networks. Technology and development expenses also include wages, benefits, payroll taxes, and equity-based compensation, for salaried employees and payments to contractors, net of capitalized expenses, engaged in the design, development, maintenance and testing of our platform, including our websites, mobile applications, and other products. Capitalized costs are recorded as a reduction of our technology and development expenses and are capitalized as internal-use software within property and equipment on the consolidated balance sheets. These assets are depreciated over their estimated useful lives and are reported in depreciation on our consolidated statements of operations. Technology and development expenses increased by$19.6 million , or 40%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , primarily due to a$10.2 million increase in software license and maintenance costs and a$9.0 million increase in personnel-related expenses, primarily driven by increased headcount.
We expect that, on an absolute dollar basis, changes in technology and development expenses will be primarily driven by headcount and software spend, which may fluctuate from period to period based on our business priorities.
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Sales and marketing
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except percentages)
Sales and marketing $ 247,167 $ 187,904 $ 79,971 $ 59,263 32 %
Percentage of revenue 20.8 % 21.1 % 16.3 %
Sales and marketing expenses consist primarily of compensation costs, which
includes wages, sales commissions, benefits, payroll taxes, and equity-based
compensation, for our sales force and marketing personnel, payments to
distribution partners for guest reservations, digital and mail-based advertising
costs for homeowners, advertising costs for search engine marketing and other
digital guest advertising, and brand marketing.
Sales and marketing expenses increased by $59.3 million , or 32%, for the year
ended December 31, 2022 , compared to the year ended December 31, 2021 . The
increase was primarily due to a $37.5 million increase in personnel-related
expenses driven by increased headcount primarily among our sales force and a
$24.4 million increase in listing fees paid to our distribution partners driven
by a 33% increase in GBV. This was partially offset by a $2.1 million decrease
in advertising to attract homeowners and guests to our platform.
We expect that, on an absolute dollar basis, changes in sales and marketing
expenses will be primarily driven by headcount and advertising expense, which
may fluctuate from period to period based on our business priorities, and
payments to distribution partners for guest reservations, which will vary from
period to period based on Gross Booking Value generated through our distribution
partners.
General and administrative
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except percentages)
General and administrative $ 107,624 $ 88,835 $ 57,587 $ 18,789 21 %
Percentage of revenue 9.1 % 10.0 % 11.7 %
General and administrative expenses primarily consist of compensation costs,
which includes wages, benefits, payroll taxes, and equity-based compensation for
administrative employees, including finance and accounting, human resources,
communications, and legal. General and administrative costs also include
professional services fees, including accounting, legal and consulting expenses,
rent expense for corporate facilities and storage, insurance premiums, and
travel and entertainment expenses.
General and administrative expenses increased by $18.8 million , or 21%, for the
year ended December 31, 2022 , compared to the year ended December 31, 2021 ,
primarily due to a $22.4 million increase in personnel-related and professional
services expenses, including those related to operating as a public company, and
a $4.0 million increase in insurance expenses, partially offset by a $7.5
million decrease in costs related to the acquisition of TurnKey completed in
fiscal 2021.
We expect that, on an absolute dollar basis, changes in general and
administrative expenses will be primarily driven by headcount and professional
fees, which may fluctuate from period to period depending on our business needs
and priorities.
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Depreciation and Amortization of intangible assets
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except percentages)
Depreciation $ 21,706 $ 17,110 $ 15,483 $ 4,596 27 %
Percentage of revenue 1.8 % 1.9 % 3.1 %
Amortization of intangible
assets $ 61,629 $ 44,163 $ 18,817 $ 17,466 40 %
Percentage of revenue 5.2 % 5.0 % 3.8 %
Depreciation expense consists of depreciation on capitalized internal-use software, furniture and fixtures, buildings and improvements, leasehold improvements, computer equipment, and vehicles.
Amortization of intangible assets expense consists of non-cash amortization expense of the acquired intangible assets, primarily homeowner contracts, which are amortized on a straight-line basis over their estimated useful lives.
Depreciation expense increased by
Amortization of intangible assets increased by$17.5 million , or 40%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , due to the strategic acquisition of TurnKey during the second quarter of 2021 and recent portfolio additions. We expect that depreciation and amortization expenses will vary on an absolute dollar basis depending on our level of investment in property and equipment and the rate at which we complete portfolio transactions and strategic acquisitions to support the growth in our business. We expect depreciation and amortization expenses as a percentage of revenue over the short-term will vary from period to period and decrease over the long term. Impairment ofGoodwill Year Ended December 31, 2021 to 2022 2022 2021 2020 $ Change % Change (in thousands, except percentages) Impairment of goodwill $ 243,991 $ - $ -$ 243,991 NM(1) Percentage of revenue 20.5 % - % - % (1) Not meaningful Impairment of goodwill represents a non-cash impairment charge of$244.0 million recorded during the fourth quarter of fiscal 2022, as it was determined that the fair value of our single reporting unit was below the carrying amount of its net assets. Refer to Note 7, Intangible Assets, Net andGoodwill to the consolidated financial statements for more information. 65 -------------------------------------------------------------------------------- Table of Contents Interest income, Interest expense and Other income (expense), net Year Ended December 31, 2021 to 2022 2022 2021 2020 $ Change % Change (in thousands, except percentages) Interest income $ 1,991 $ 36 $ 385$ 1,955 5,431 % Percentage of revenue 0.2 % - % 0.1 % Interest expense$ (2,576) $ (31,723) $ (7,907) $ 29,147 (92) % Percentage of revenue (0.2) % (3.6) % (1.6) % Other income (expense), net$ 60,410 $ 3,280$ (5,725) $ 57,130 1,742 % Percentage of revenue 5.1 % 0.4 % (1.2) % Interest income consists primarily of interest earned on our cash and cash equivalents. Interest income increased by$2.0 million for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 . The increase in interest income is primarily due to higher prevailing interest rates during 2022, compared to 2021, and investing a greater proportion of our cash and cash equivalents into money market funds. Interest expense consists primarily of interest payable and the amortization of deferred financing costs related to our outstanding debt arrangements. InMay 2020 , we issued the D-1 Convertible Notes. While the D-1 Convertible Notes were outstanding, we accrued cash interest and paid-in-kind interest at 3% and 7% per annum, respectively. In connection with the Reverse Recapitalization onDecember 6, 2021 , the D-1 Convertible Notes converted into equity interests and are no longer outstanding. Interest expense decreased by$29.1 million , or 92%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , primarily due to the conversion of the D-1 Convertible Notes into equity interests during 2021. As a result, we did not incur any interest for these notes during the year endedDecember 31, 2022 . In connection with this conversion, the Company also recorded incremental interest expense of$19.6 million during 2021. Refer to Note 10, Debt to the consolidated financial statements for more information. Other income (expense), net, consists primarily of the change in fair value of the contingent earnout share consideration represented by our ClassG Common Stock, the change in fair value ofVacasa Holdings warrant derivative liabilities, and foreign currency exchange gains and losses. In connection with the Reverse Recapitalization onDecember 6, 2021 , theVacasa Holdings warrant derivative liabilities were net exercised in accordance with their terms and are no longer outstanding. Other income, net increased by$57.1 million , or 1,742%, for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 . For the year endedDecember 31, 2022 , other income, net, was primarily due to a$56.4 million decline in the fair value of contingent earnout share consideration represented by our Class G Common Stock. For the year endedDecember 31, 2021 , other income, net, was driven by a$14.3 million decline in the fair value of contingent earnout share consideration represented by our Class G Common Stock, partially offset by an increase in the fair value ofVacasa Holdings common unit warrant derivative liabilities of$11.5 million . In connection with the Reverse Recapitalization onDecember 6, 2021 , theVacasa Holdings warrant derivative liabilities were net exercised and are no longer outstanding.
Key Business Metrics and Non-GAAP Financial Measures
We collect and analyze key business metrics, including Gross Booking Value
("GBV"), Nights Sold, and GBV per Night Sold, as well as non-GAAP financial
measures to assess our performance. In addition to revenue, net loss, loss from
operations, and other results under GAAP, we use non-GAAP financial measures,
including Adjusted EBITDA, Non-GAAP cost of revenue, Non-GAAP operations and
support expense, Non-GAAP technology and development expense, Non-GAAP sales and
marketing expense, and Non-GAAP general and administrative expense
(collectively, the "Non-GAAP Financial Measures") to evaluate our performance,
identify trends, formulate financial projections, and make strategic decisions.
We provide a reconciliation below of the Non-GAAP Financial Measures to their
most directly comparable GAAP financial measures.
We believe these Non-GAAP Financial Measures, when taken together with their
corresponding comparable GAAP financial measures, are useful for analysts and
investors. These Non-GAAP Financial Measures allow for more meaningful
comparisons of our performance by excluding items that are non-cash in nature or
when the amount and timing of these items is unpredictable or one-time in
nature, not driven by the performance of our core business operations or renders
comparisons with prior periods less meaningful.
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The key business metrics and Non-GAAP Financial Measures have significant
limitations as analytical tools, should be considered as supplemental in nature,
and are not meant as a substitute for any financial information prepared in
accordance with GAAP. We believe the Non-GAAP Financial Measures provide useful
information to investors and others in understanding and evaluating our results
of operations, are frequently used by these parties in evaluating companies in
our industry, and provide useful measures for period-to-period comparisons of
our business performance. Moreover, we present the key business metrics and
Non-GAAP Financial Measures because they are key measurements used by our
management internally to make operating decisions, including those related to
analyzing operating expenses, evaluating performance, and performing strategic
planning and annual budgeting.
The Non-GAAP Financial Measures have significant limitations as analytical
tools, including that:
•these measures do not reflect our cash expenditures, or future requirements for
capital expenditures or contractual commitments;
•these measures do not reflect changes in, or cash requirements for, our working
capital needs;
•Adjusted EBITDA does not reflect the interest expense, or the cash required to
service interest or principal payments, on our debt;
•these measures exclude equity-based compensation expense, which has been, and
will continue to be for the foreseeable future, a significant recurring expense
in our business and an important part of our compensation strategy;
•Adjusted EBITDA and Non-GAAP general and administrative expense do not include
one-time costs related to strategic business combinations;
•these measures do not reflect costs related to restructuring programs;
•these measures do not reflect our tax expense or the cash required to pay our
taxes; and
•with respect to Adjusted EBITDA, although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized will often have to
be replaced in the future, and such measures do not reflect any cash
requirements for such replacements.
In the future, we may incur expenses or charges such as those being adjusted in
the calculation of these Non-GAAP Financial Measures. Our presentation of these
Non-GAAP Financial Measures should not be construed as an inference that future
results will be unaffected by unusual or nonrecurring items, and our Non-GAAP
Financial Measures may be calculated differently from similarly titled metrics
or measures presented by other companies.
Year Ended December 31, 2021 to 2022
2022 2021 2020 $ Change % Change
(in thousands, except GBV per Night Sold)
Gross Booking Value ("GBV") $ 2,555,195 $ 1,915,591 $ 935,447 $ 639,604 33 %
Nights Sold 6,195 5,165 3,005 1,030 20 %
GBV per Night Sold $ 412 $ 371 $ 311 $ 41 11 %
Gross Booking Value
GBV represents the dollar value of bookings from our distribution partners as
well as those booked directly on our platform related to Nights Sold during the
period and cancellation fees for bookings cancelled during the period (which may
relate to bookings made during prior periods). GBV is inclusive of amounts
charged to guests for rent, fees, and the estimated taxes paid by guests when we
are responsible for collecting tax.
Growth in GBV reflects our ability to attract homeowners through individual
additions, portfolio transactions or strategic acquisitions, retain homeowners
and guests, and optimize the availability and sale throughput of nights. Growth
in GBV also reflects growth in Nights Sold and the pricing of rents, fees, and
estimated taxes paid by guests.
In the year ended December 31, 2022 , GBV increased to $2,555.2 million , a 33%
increase compared to the year ended December 31, 2021 . The increase was
primarily driven by the growth of new homes on our platform and Nights Sold and
the optimization of rates and fees, which led to an increase in the GBV per
Night Sold.
We experience seasonality in our GBV that is consistent with the seasonality of
Nights Sold as described below. Future changes in GBV will be determined by the
number of homes we add to our platform and our ability to optimize pricing and
throughput of the homes on our platform.
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Nights Sold
We define Nights Sold as the total number of nights stayed by guests on our platform in a given period. Nights Sold is a key measure of the scale and quality of homes on our platform and our ability to generate demand and manage yield on behalf of our homeowners. We experience seasonality in the number of Nights Sold. Typically, the second and third quarters of the year each have higher Nights Sold than the first and fourth quarters, as guests tend to travel during the peak travel season. In the year endedDecember 31, 2022 , Nights Sold increased to 6.2 million, a 20% increase compared to the year endedDecember 31, 2021 . The increase in Nights Sold was primarily due to homes added to our platform through our individual sales approach and portfolio additions during or after the year endedDecember 31, 2021 , including as a result of our acquisition of TurnKey in 2021.
Future changes in Nights Sold will be determined by changes to the number of homes on our platform and how we optimize the combination of pricing and throughput of the homes on our platform.
Gross Booking Value per Night Sold
GBV per Night Sold represents the dollar value of each night stayed by guests on our platform in a given period. GBV per Night Sold reflects the pricing of rents, fees, and estimated taxes paid by guests.
In the year endedDecember 31, 2022 , GBV per Night Sold increased to$412 , an 11% increase compared to the year endedDecember 31, 2021 . The increase in GBV per Night Sold was primarily driven by optimization of rates and fees, as well as the mix of homes rented on our platform. There is a strong relationship between GBV and Nights Sold, and these two variables are managed in concert with one another. Our pricing algorithms are continually evaluating the trade-offs between price and occupancy to seek to optimize the mix of Nights Sold and GBV per Night Sold. Future changes in GBV per Night Sold will be determined by how we optimize the combination of pricing and throughput of the homes on our platform.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) excluding: (1) depreciation and acquisition-related items consisting of amortization of intangible assets and impairments of goodwill and intangible assets, if applicable; (2) interest income and expense; (3) any other income or expense not earned or incurred during our normal course of business; (4) any income tax benefit or expense; (5) equity-based compensation costs; (6) one-time costs related to strategic business combinations; and (7) restructuring costs. We believe this measure is useful for analysts and investors as this measure allows for more meaningful period-to-period comparison of our business performance. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature or the amount and timing of these items is unpredictable or one-time in nature, not driven by the performance of our core business operations and renders comparisons with prior periods less meaningful. Adjusted EBITDA as a percentage of Revenue is calculated by dividing Adjusted EBITDA for a period by Revenue for the same period. Seasonal trends in our Nights Sold impact Adjusted EBITDA for any given quarter. Typically, the second and third quarters of the year have higher Adjusted EBITDA and Adjusted EBITDA as a percentage of revenue, as fixed costs are allocated across a larger number of guest reservations. We expect Adjusted EBITDA and Adjusted EBITDA as a percentage of revenue to fluctuate in the near term due to this seasonality and improve over the medium to long term as we achieve operating leverage from scale and density. Adjusted EBITDA was$(27.5) million for the year endedDecember 31, 2022 , compared to$(28.5) million for the year endedDecember 31, 2021 . The favorable change in Adjusted EBITDA is a reflection of the changes in our revenue, operating costs, and expenses, as discussed above. Adjusted EBITDA as a percentage of Revenue was (2)% for the year endedDecember 31, 2022 , compared to (3)% for the year endedDecember 31, 2021 . 68 -------------------------------------------------------------------------------- Table of Contents The following table reconciles net loss to Adjusted EBITDA: Year Ended December 31, 2022 2021 2020 (in thousands, except percentages) Net loss$ (332,149) $ (154,591) $ (92,338) Add back: Depreciation and amortization of intangible assets 83,335 61,273 34,300 Impairment of goodwill 243,991 - - Interest income (1,991) (36) (385) Interest expense 2,576 31,723 7,907 Other income (expense), net (60,410) (3,280) 5,725 Income tax benefit (expense) 1,022 784 (315) Equity-based compensation 34,170 26,978 3,349 Business combination costs(1) 601 8,382 - Restructuring(2) 1,379 250 6,805 Adjusted EBITDA$ (27,476) $ (28,517) $ (34,952) Adjusted EBITDA as a percentage of Revenue (2) % (3) % (7) %
(1) Represents third-party costs associated with the strategic acquisition of TurnKey and third-party costs associated with our Reverse Recapitalization.
(2) For 2022, these costs are associated with a workforce reduction primarily in
our corporate functions that occurred in the fourth quarter. For 2021 and 2020,
these costs represent a reorganization and workforce reductions in response to
the COVID-19 pandemic and costs associated with the wind-down of a significant
portion of our international operations.
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Non-GAAP Operating Expenses
We calculate Non-GAAP cost of revenue, Non-GAAP operations and support expense,
Non-GAAP technology and development expense, and Non-GAAP sales and marketing
expense by excluding the non-cash expenses arising from the grant of
equity-based awards and restructuring costs. We calculate Non-GAAP General and
administrative expense by excluding the non-cash expenses arising from the grant
of equity-based awards, one-time costs related to strategic business
combinations, and restructuring costs.
Year Ended December 31,
2022 2021 2020
(in thousands)
Cost of revenue $ 564,373 $ 440,753 $ 256,086
Less: equity-based compensation (1,025) (113) -
Less: restructuring(1) (45) - (517)
Non-GAAP cost of revenue $ 563,303 $ 440,640 $ 255,569
Operations and support $ 264,068 $ 186,984 $ 116,192 Less: equity-based compensation (5,931) (2,574) (252) Less: restructuring(1)
(382) - (1,613)
Non-GAAP operations and support
Technology and development$ 68,344 $ 48,709 $
27,030
Less: equity-based compensation (5,733) (3,032) (641) Less: restructuring(1)
(327) - (1,040)
Non-GAAP technology and development
Sales and marketing$ 247,167 $ 187,904 $
79,971
Less: equity-based compensation (5,554) (8,270) (372) Less: restructuring(1) (487) - (1,187) Non-GAAP sales and marketing$ 241,126 $ 179,634 $ 78,412 General and administrative$ 107,624 $ 88,835 $ 57,587
Less: equity-based compensation (15,927) (12,989) (2,084) Less: business combination costs(2) (601) (8,382)
-
Less: restructuring(1) (138) (250) (2,448)
Non-GAAP general and administrative
(1) For 2022, these costs are associated with a workforce reduction primarily in our corporate functions that occurred in the fourth quarter. For 2021 and 2020, these costs represent a reorganization and workforce reductions in response to the COVID-19 pandemic and costs associated with the wind-down of a significant portion of our international operations.
(2) Represents third-party costs associated with the strategic acquisition of TurnKey and third-party costs associated with our Reverse Recapitalization.
Liquidity and Capital Resources
Since our founding, our principal sources of liquidity have been from proceeds
we have received through the issuance of equity and debt financing. We have
incurred significant operating losses and generated negative cash flows from
operations as we have invested to support the growth of our business. To execute
on our strategic initiatives, we may incur operating losses and generate
negative cash flows from operations in the future, and as a result, we may
require additional capital resources. These capital resources may be obtained
through additional equity offerings, which will dilute the ownership of our
existing
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stockholders, or debt financings, which may contain covenants that restrict the
operations of our business. In the event that additional financing is required
from outside sources, we may not be able to raise the financing on terms
acceptable to us or at all. If we are unable to raise additional capital when
desired, our business, financial condition, and results of operations could be
adversely affected.
As of December 31, 2022 , we had cash and cash equivalents of $157.8 million . In
addition, as of December 31, 2022 , $81.6 million was available for borrowing
under our Revolving Credit Facility (as defined below). Our primary requirements
for liquidity and capital are to finance working capital requirements, capital
expenditures and other general corporate purposes. In addition, following the
Reverse Recapitalization, we expect to need cash to make payments under the Tax
Receivable Agreement. We expect our operations will continue to be financed
primarily by equity offerings, debt financing, and cash and cash equivalents. We
believe our existing sources of liquidity will be sufficient to fund operations,
working capital requirements, capital expenditures, and debt service obligations
for at least the next 12 months.
Our future capital requirements will depend on many factors, including, but not
limited to, our growth, our ability to attract and retain new homeowners and
guests that utilize our services, the continuing market acceptance of our
offerings, the timing and extent of spending to enhance our technology, and the
expansion of sales and marketing activities. Further, we may in the future enter
into arrangements to acquire or invest in businesses, products, services, and
technologies.
Reverse Recapitalization
In connection with the Reverse Recapitalization, we received net proceeds of
$302.6 million . We used these proceeds to pay additional transaction costs of
$8.4 million , and the remaining $294.2 million of cash proceeds were contributed
to our balance sheet. See Note 3, Reverse Recapitalization to our consolidated
financial statements for additional information.
Revolving Credit Facility
InOctober 2021 , we entered into a credit agreement, which, as subsequently amended inDecember 2021 (as amended, the "Credit Agreement"), provides for a senior secured revolving credit facility in an aggregate principal amount of$105.0 million ("Revolving Credit Facility"). The Revolving Credit Facility includes a sub-facility for letters of credit in an aggregate face amount of$40.0 million , which reduces borrowing availability under the Revolving Credit Facility. As ofDecember 31, 2022 , there were no borrowings outstanding under the Revolving Credit Facility. As ofDecember 31, 2022 ,$23.4 million of letters of credit were issued under the Revolving Credit Facility, and$81.6 million was available for borrowings.
Borrowings under the Revolving Credit Facility are subject to interest, determined as follows:
•Alternate Base Rate ("ABR") borrowings accrue interest at a rate per annum
equal to the ABR plus a margin of 1.50%. The ABR is equal to the greatest of (i)
the Prime Rate, (ii) the New York Federal Reserve Bank Rate plus 0.50%, and
(iii) the Adjusted London Interbank Offered ("LIBO") Rate for a one-month
interest period plus 1.0%, subject to a 1.0% floor.
•Eurocurrency borrowings accrue interest at a rate per annum equal to the
Adjusted LIBO Rate plus a margin of 2.50%. The Adjusted LIBO Rate is calculated
based on the applicable LIBOR for U.S. dollar deposits, subject to a 0.0% floor,
multiplied by a fraction, the numerator of which is one and the denominator of
which is one minus the maximum effective reserve percentage for Eurocurrency
funding.
In addition to paying interest on the principal amounts outstanding under the
Revolving Credit Facility, we are required to pay a commitment fee on unused
amounts at a rate of 0.25% per annum. We are also required to pay customary
letter of credit and agency fees.
The Credit Agreement contains customary covenants. In addition, we are required
to maintain a minimum amount of consolidated revenue, measured on a trailing
four-quarter basis, as of the last date of each fiscal quarter, provided that
such covenant will only apply if, on such date, the aggregate principal amount
of outstanding borrowings under the Revolving Credit Facility and letters of
credit (excluding undrawn amounts under any letters of credit in an aggregate
face amount of up to $20.0 million and letters of credit that have been cash
collateralized) exceeds 35% of the then-outstanding revolving commitments. We
are also required to maintain liquidity of at least $15.0 million as of the last
date of each fiscal quarter.
See Note 10, Debt to our consolidated financial statements for additional information.
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2022 2021 2020
(in thousands)
Net cash provided by (used in) operating
activities $ (51,907) $ 63,265 $ (2,427)
Net cash used in investing activities (108,175) (114,633) (12,671)
Net cash provided by (used in) financing (39,067) 279,611 96,462
activities
Effect of exchange rate fluctuations on cash, (327) (119) 159 cash equivalents, and restricted cash Net increase (decrease) in cash, cash$ (199,476) $ 228,124 $ 81,523 equivalents and restricted cash
Operating Activities
Net cash used in operating activities was$51.9 million for the year endedDecember 31, 2022 , primarily due to a net loss of$332.1 million , partially offset by$307.4 million of non-cash items related to depreciation, amortization of intangible assets, impairment of goodwill, reduction in the carrying amount of operating lease right-of-use assets, fair value adjustment on derivative liabilities, and equity-based compensation expense. Additional uses of cash flows resulted from changes in working capital, including a$42.7 million increase in prepaid expense and other assets, a$34.6 million decrease in funds payable to owners, a$17.2 million decrease in deferred revenue and future stay credits, and a$3.4 million decrease in hospitality and sales taxes payable, partially offset by an$83.2 million decrease in accounts receivable driven by the settlement of amounts owed by the prior owners of acquired businesses managed under transition services agreements. Net cash provided by operating activities was$63.3 million for the year endedDecember 31, 2021 , primarily due to a net loss of$154.6 million , partially offset by$117.6 million of non-cash items related to depreciation, amortization of intangible assets, fair value adjustment on derivative liabilities, non-cash interest expense, and equity-based compensation expense. Additional sources of cash flows resulted from changes in working capital, including a$40.2 million increase in funds payable to owners and a$11.1 million increase in hospitality and sales taxes payable as a result of increased bookings on our platform, partially offset by a$3.6 million increase in deferred revenue and future stay credits. Investing Activities
Our primary investing activities include cash paid for business combinations, capitalized internally developed software, and purchases of property and equipment.
Net cash used in investing activities was$108.2 million for the year endedDecember 31, 2022 , primarily due to$89.5 million of cash paid for business combinations, net of cash and restricted cash acquired,$9.8 million of cash paid for capitalized internally developed software costs, and$8.8 million of cash paid for purchases of property and equipment. Net cash used in investing activities was$114.6 million for the year endedDecember 31, 2021 , primarily due to$103.4 million of net cash paid to purchase businesses acquired,$5.9 million of cash paid for purchases of property and equipment, and$5.4 million of cash paid for capitalized internally developed software costs. Financing Activities Our primary financing activities have come from the proceeds from our Reverse Recapitalization in 2021 and issuance of senior secured convertible notes in 2020. These proceeds were partially offset by cash payments for contingent consideration and deferred payments to sellers in connection with business combinations to grow the number of homes under management in new and adjacent markets served.
Net cash used in financing activities was
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Net cash provided by financing activities was $279.6 million for the year ended
December 31, 2021 , primarily attributable to $302.6 million of proceeds received
from the Reverse Recapitalization, partially offset by $7.9 million of payments
for transaction-related costs. In addition, we made financing-related cash
payments of $13.6 million for business combinations.
Material Cash Requirements from Contractual and Other Obligations
As of
•Operating Leases - We enter into various non-cancelable lease agreements primarily related to certain field and corporate office facilities. Future minimum lease payments to be made under non-cancelable operating leases with an initial or remaining term greater than one year were$35.5 million , with$11.2 million payable within 12 months. See Note 8, Leases to our consolidated financial statements for further detail of our obligations and the timing of expected future payments.
•Acquisition Liabilities - In connection with our portfolio transactions,
accounted for as business combinations, we record acquisition-related
liabilities, if applicable, for any contingent consideration or deferred
payments to the seller. Our total acquisition liabilities were
•Information Technology Service Agreements - Information technology service agreements represent outsourced services and licensing costs pursuant to our information technology agreements. We had contractual payments for these agreements of$21.5 million , with$15.3 million payable within 12 months. •Revolving Credit Facility - InOctober 2021 , we entered into the Revolving Credit Facility, which, as subsequently amended inDecember 2021 , provides for borrowings in an aggregate principal amount of up to$105.0 million , which amount may be borrowed and repaid from time to time. As ofDecember 31, 2022 , there were no borrowings outstanding under the Revolving Credit Facility. As ofDecember 31, 2022 , there were letters of credit of$23.4 million issued under the Revolving Credit Facility, and$81.6 million was available for borrowings. See "Liquidity and Capital Resources - Revolving Credit Facility" for additional information. •Tax Receivable Agreement - The payments that we may be required to make under the Tax Receivable Agreement that we entered into may be significant but we are currently unable to estimate the amounts and timing of the payments that may be due thereunder. See Note 2, Significant Accounting Policies to our consolidated financial statements for further details about the Tax Receivable agreement.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Impairment of
Description
As discussed in Note 7, Intangible Assets, Net andGoodwill to our consolidated financial statements, we performed a quantitative goodwill impairment assessment as ofDecember 31, 2022 , which resulted in goodwill impairment charges of$244.0 million . The fair value estimate of our single reporting unit was derived from a combination of an income approach and a market approach. Under the income approach, we estimated the fair value of the reporting unit based on the present value of estimated future cash flows. We prepared cash flow projections based on management's estimates of revenue growth rates and operating margins, taking into consideration the historical performance and the current macroeconomic, industry, and market conditions. We based the discount rate on the weighted-average cost of capital considering company-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimated the fair value of the reporting unit based on revenue market multiples derived from 73
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Judgments and Uncertainties
Revenue growth rates, operating profit margins, and the discount rate applied were the significant assumptions used in the income approach used to determine the fair value of our single reporting unit. The forecasted 2023 revenue growth rate, comparable publicly traded companies selected, and estimated control premium were the significant assumptions used in the market approach. The concluded fair value of our single reporting unit, based on a combination of the income and market approach, was reconciled to our market capitalization. The excess of the concluded fair value over our market capitalization represents an implied control premium, which we reviewed for reasonableness by comparison to observed transaction premiums, premium studies, and consideration of specific attributes of the Company.
Effect if Actual Results Differ from Assumptions
The goodwill impairment assessment performed as ofDecember 31, 2022 was the first quantitative assessment of the fair value of the Company's single reporting unit that has been performed during the last three years. A 100 basis point decrease to the implied control premium would increase impairment of goodwill by$5.0 million .
Valuation of Homeowner Contracts
Description
When we engage in a strategic acquisition or portfolio transaction accounted for as a business combination, we estimate the fair value of acquired assets, assumed liabilities, and purchase consideration transferred as of the acquisition date of each business combination. In every acquisition, homeowner contracts are the most significant intangible asset that we acquire. In valuing these homeowner contracts, we may engage a third-party valuation expert to estimate the fair value of these assets using a version of the income approach known as the "multi-period excess earnings method." This method uses a discounted cash flow approach that is derived from assumptions that include revenue growth rates, homeowner retention rates, operating profit margins, and the selection of an appropriate discount rate. We consider this approach the most appropriate valuation technique because the inherent value of our homeowner contracts is their ability to generate current and future income.
Judgments and Uncertainties
Revenue growth rates, homeowner retention rates, operating profit margins, and the discount rate applied are the significant assumptions used in the multi-period excess earnings method to determine the fair value of homeowner contracts. These estimates are influenced by many factors, including historical financial information and management's expectations for future growth.
Effect if Actual Results Differ from Assumptions
We have not made any changes in the accounting methodology used to determine the fair value of homeowner contracts during the last three years.
During the year endedDecember 31, 2022 , we acquired homeowner contracts valued at$56.4 million . A 10% increase in the calculated fair value of these homeowner contracts would increase amortization expense by$0.7 million during fiscal year 2022 and by$1.1 million annually during each full year remaining in their useful life. During the year endedDecember 31, 2021 , we acquired homeowner contracts valued at$172.6 million . A 10% increase in the calculated fair value of these homeowner contracts would have increased amortization expense by$2.1 million during fiscal year 2021 and by$3.5 million annually during each full year remaining in their useful life.
Valuation of Equity Units
Description
Prior to the Reverse Recapitalization, given the absence of a public trading market for our equity units, and in accordance with theAmerican Institute of Certified Public Accountants Accounting and Valuation Guide : Valuation of Privately-Held Company Equity Securities Issued as Compensation, our management and board of directors determined the best estimate of fair value of our common units and redeemable convertible preferred units. 74
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To determine the fair value of our equity units, we engaged a third-party
valuation expert. We first determined our business enterprise value ("BEV") and
then allocated that equity fair value to our redeemable convertible preferred
units, common units and common unit equivalents. We estimated our BEV primarily
using a market approach, which is a generally accepted valuation approach. The
market approach measures the value of a business through an analysis of recent
sales or offerings of comparable investments or assets, and in our case, focused
on comparing our business to a group of its peer companies. In applying this
method, valuation multiples are derived from historical and forecasted operating
data of the peer company group. We then apply the multiples to our operating
data (i.e. revenue and EBITDA) to arrive at a range of indicated values of our
Company.
At each valuation date, once the BEV for the business was determined, the equity
value was allocated to each of our redeemable convertible preferred units,
common units and common unit equivalents, using one of the following methods:
(1) the option pricing method ("OPM"); (2) a probability weighted expected
return method ("PWERM"); or (3) the hybrid method, which is a hybrid between the
OPM and PWERM methods.
The OPM treats common units and redeemable convertible preferred units as call
options on a business, with exercise prices based on the liquidation preference
of the redeemable convertible preferred units. Therefore, the common unit only
has value if the funds available for distribution to the holders of common units
exceed the value of the liquidation preference of the redeemable convertible
preferred units at the time of a liquidity event, such as a merger, sale, or
initial public offering, assuming the business has funds available to make a
liquidation preference meaningful and collectible by unit holders. The common
unit is modeled as a call option with a claim on the business at an exercise
price equal to the remaining value immediately after the redeemable convertible
preferred units are liquidated.
The PWERM utilizes discrete future exit scenarios to determine the value of our
equity units. For each of the various scenarios, an equity value is estimated
and the rights and preferences for each unit holder class are considered to
allocate the equity value to common units. The equity unit values are then
multiplied by a discount factor reflecting the calculated discount rate and the
timing of the event. Lastly, the equity unit value is multiplied by an estimated
probability for each scenario. Our board of directors and management team
evaluated the probability and timing of the discrete future exit scenarios at
each valuation date.
Judgments and Uncertainties
Prior to the Reverse Recapitalization, factors used to determine the value of
our equity units included:
•the prices at which others have purchased our redeemable convertible preferred
units in arms' length transactions;
•the rights, preferences and privileges of our redeemable convertible preferred
units relative to those of our common units;
•our operating and financial performance;
•our estimates of future financial performance;
•lack of marketability of our equity units;
•the valuation of comparable companies;
•the industry outlook;
•the likelihood and timing of achieving a liquidity event, such as an initial
public offering or sale of our Company given prevailing market conditions;
•the U.S. and global economic and capital market conditions and outlook; and
•additional objective and subjective factors relating to our business.
On July 28, 2021 , the Company entered into the Business Combination Agreement to
become a publicly traded company through a business combination with TPG Pace
Solutions Corp. , a special purpose acquisition company. The Business Combination
Agreement provided management with a Company-specific indication of fair value
of our equity units. This substantially reduced our need to rely on many of the
subjective factors described above.
On December 6, 2021 , the Company consummated the Reverse Recapitalization (see
Note 3, Reverse Recapitalization to our consolidated financial statements), and
the Company's Class A Common Stock began to trade publicly on December 7, 2021 .
Effect if Actual Results Differ from Assumptions
During fiscal year 2021, the valuation of our equity units impacted the following:
•The loss attributable to remeasurement of our redeemable convertible preferred units was$426.1 million during fiscal year 2021. These units were no longer remeasured at fair value subsequent toApril 1, 2021 . A 10% increase in 75 -------------------------------------------------------------------------------- Table of Contents the fair value of the redeemable convertible preferred units as ofApril 1, 2021 would have increased their remeasurement loss by$119.8 million . •Remeasurement of our common unit warrant derivative liabilities was$11.5 million during fiscal year 2021. These warrants were remeasured at fair value until the consummation of the Reverse Recapitalization onDecember 6, 2021 . As of this date, the warrants were remeasured using the valuation indicated by the BCA. As such, there was not significant judgment or uncertainty in their remeasurement. •Equity-based compensation expense was$27.0 million during fiscal year 2021. A greater degree of subjectivity was required to determine the grant-date fair value of equity-based compensation awards granted prior to the execution of the BCA. Awards granted during fiscal year 2021 prior to the execution of the BCA had a total grant-date fair value of$18.8 million . A 10% increase in the grant-date fair value of these awards would increase equity-based compensation expense by$0.4 million in 2021 and by$0.5 million annually during each full year remaining in their vesting period.
JOBS Act Accounting Election
We meet the definition of an emerging growth company under the JOBS Act, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. As ofJanuary 1, 2022 , we elected to irrevocably opt out of the extended transition period.
Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies to the consolidated financial statements included under Part II, Item 8 of this Annual Report on Form 10-K for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
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