ROVER GROUP, INC. As a result of the closing of the Merger, the financial statements ofA Place for Rover, Inc. , aDelaware corporation and our wholly owned subsidiary ("Legacy Rover"), are now the financial statements of Rover. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements as of and for the three and nine months endedSeptember 30, 2021 and related notes appearing elsewhere in this Quarterly Report and Legacy Rover's audited consolidated financial statements as of and for the years endedDecember 31, 2018 , 2019 and 2020 and related notes included in our prospectus filed with theSEC onSeptember 23, 2021 . Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements based upon current expectations that involve risks and uncertainties. You should read the sections in this Quarterly Report titled " Risk Factors " and " Cautionary Note Regarding Forward-Looking Statements " for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements. Unless otherwise indicated, the terms "Rover," "the Company," "we," "us," or "our" refer toRover Group, Inc. , aDelaware corporation, together with its consolidated subsidiaries. Our Business
We believe in the unconditional love of pets, and Rover exists to make it possible for everyone to experience this love in their lives.
Rover was founded to give pet parents an alternative to relying on friends and family, neighbors, and kennels for pet care; it is the world's largest online marketplace for pet care based on gross booking value, or GBV, which represents the dollar value of bookings on our platform in a period and is inclusive of pet care provider earnings, service fees, add-ons, taxes and alterations that occurred during that period. Our online marketplace matches pet parents with pet lovers dedicated to providing excellent pet care while earning extra income. Our simple and easy-to-use platform enables pet parents to easily discover and book the right pet care providers for them and their pets, communicate with providers and write and read reviews. Our platform enables pet care providers to list on our marketplace with low startup costs, schedule bookings, communicate with pet parents, and receive payment. We continue to be focused on servicing pet parent needs when it comes to their boarding and house-sitting needs, which we categorize as overnight services and their walking, drop-in and daycare needs, which categorize as daytime services. We have established a scaled network of providers who post their services at their own price points. We leverage our technology platform, scale, and density of the users on the platform and the insights from the more than 43 million services booked to continuously improve our offerings. We generate substantially all of our revenue from our pet care marketplace platform that connects pet care providers and pet parents. We collect services fees from both providers and pet parents. As more providers accept and complete bookings, we earn more revenue. We also earn revenue from ancillary sources such as background checks and affiliate advertising deals. We have made focused and substantial investments in support of our mission. For example, to continually launch new features on our platform we have invested heavily in product development and have completed two strategic acquisitions. We have also invested in sales and marketing to grow the user base of the platform acrossthe United States ,Canada and eight countries inEurope . Notwithstanding the impact of COVID-19, we are continuing to invest in the future through product development and marketing efforts. We also continue to test new services lines that we may launch at a future date. Our strategy is to create a marketplace that operates at a hyper-local level while levering our trusted brand. Even as we invest in the business, we also remain focused on finding ways to operate more efficiently. Impact of COVID-19 The ongoing COVID-19 pandemic continues to impact communities globally, including in the markets we serve inthe United States ,Canada andEurope , which in turn impacts our business. Since the outbreak began inMarch 2020 , authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. Restrictive measures have not only negatively impacted consumer and business spending habits, but they have also adversely impacted, and may further impact, our workforce and operations. Although certain of these measures have now eased in some geographic regions, overall measures to contain the COVID-19 outbreak may remain in 35 -------------------------------------------------------------------------------- Table of Contents place for a significant period of time as many geographic regions are experiencing a resurgence of COVID-19 infections, as well as new variants of the virus, such as the Delta variant. The duration and severity of this pandemic, including new variants, are unknown, and the extent of the business disruption and financial impact depend on factors beyond our knowledge and control. As a result, there remains uncertainty in the near and medium-term as the pandemic continues to create uncertainty and impact travel and a return to offices, which could result in higher than average cancellation rates.
Key Business Metrics
In addition to the measures presented in our consolidated financial statements,
we use the following metrics to measure our performance, identify trends,
formulate financial projections, and make strategic decisions. In addition to
the comparisons between the third quarter of 2021 and 2020, the narrative below
reflects supplemental comparisons between the third quarter of 2021 and 2019.
Given the impact of COVID-19 on our business in the third quarter of 2020, we
believe this supplemental comparison is more meaningful to investors.
Bookings
We define a booking as a single arrangement, prior to cancellation, between a
pet parent and pet care provider, which can be for a single night or multiple
nights for our overnight services, or for a single walk/day/drop-in/groom or
multiple walks/days/drop-ins for our daytime services. We believe that the
number of bookings is a useful indicator of the scale of our marketplace. We
define new bookings as the total number of first-time bookings that new users,
which Rover refers to as pet parents, book on our platform in a period. We
define repeat bookings as the total number of bookings from pet parents who have
had a previous booking on Rover.
[[Image Removed: rovr-20210930_g1.jpg]]
In the three months ended September 30, 2021 , we had 1.3 million bookings, a
118% increase from 0.6 million bookings in the three months ended September 30,
2020 . In the three months ended September 30, 2020 , we had a 49% decrease from
1.1 million bookings in the three months ended September 30, 2019 , primarily due
to the COVID-19 pandemic. The 1.3 million bookings in the three months ended
September 30, 2021 was a 10% increase from 1.1 million bookings in the three
months ended September 30, 2019 . This brought our total to 3.0 million bookings
in the nine months ended September 30, 2021 , compared to 1.8 million bookings in
the nine months ended September 30, 2020 , and 3.1 million bookings in the nine
months ended September 30, 2019 . Bookings grow as we attract new pet parents to
the platform and as pet parents increase their repeat activity on the platform.
New bookings in the three months ended September 30, 2021 were 259,000, a 179%
increase from the three months ended September 30, 2020 . The improvement was
driven by improved travel dynamics from 2020's COVID-induced downturn, strong
organic growth and increased pet ownership between the two periods. New bookings
in the three months ended September 30, 2021 were up 32% from 197,000 in the
three months ended September 30, 2019 and the
36
--------------------------------------------------------------------------------
Table of Contents
distribution of these customers across services roughly mirrored our normal
historical mix. We had for the first time over 1.0 million repeat bookings in
the three months ended September 30, 2021 , a 106% increase from the three months
ended September 30, 2020 driven by strong initial repeat behavior from 2021
cohorts, continued strength from late 2020 cohorts, offset by performance of
pre-pandemic cohorts which while trailing historical performance, still showed
steady recovery during the quarter. Repeat bookings for the three months ended
September 30, 2021 were up 6% from 950,000 in the three months ended September
30, 2019 . Momentum in new customer acquisition drove our ratio of repeat
customers to new customers down slightly for the three months ended September
30, 2021 compared to the same period in 2019.
Gross Booking Value
Gross Booking Value, or GBV, represents the dollar value of bookings on our
platform in a period and is inclusive of pet care provider earnings, service
fees, add-ons, taxes and alterations that occurred during that period. We
believe that GBV is a useful indicator of the level of spending on and growth of
our platform. Growth in GBV represents increasing activity on our platform from
repeat and new pet parents and may differ slightly from bookings growth
depending on the mix of daytime and overnight services for each period. GBV can
also be impacted by cancellation rates which have been higher during the
COVID-19 pandemic.
In the three months ended September 30, 2019 , our cancellation rate was 10%,
which closely resembled similar rates for the same quarter in prior years. In
the three months ended September 30, 2021 and 2020, our cancellation rate was
15% and 13% of GBV, respectively, as a result of the COVID-19 pandemic. In the
nine months ended September 30, 2021 , our cancellation rate was 13%.
[[Image Removed: rovr-20210930_g2.jpg]]
In the three months ended September 30, 2021 , we had $157.1 million in GBV, a
176% increase from $56.9 million in GBV in the three months ended September 30,
2020 . In the three months ended September 30, 2020 , we had a 51% decrease from
$116.2 million in GBV in the three months ended September 30, 2019 , primarily
due to the COVID-19 pandemic. The $157.1 million in GBV in the three months
ended September 30, 2021 was a 35% increase from $116.2 million in GBV in the
three months ended September 30, 2019 . Demand for services was relatively stable
throughout the three months ended September 30, 2021 , despite the increased
impact from the Delta variance of COVID-19, with GBV for the period growing 35%
over the same period in 2019. In the nine months ended September 30, 2021 , our
GBV was $355.9 million , a 102% increase from the $176.5 million in GBV from the
nine months ended September 30, 2020 , and an 11% increase from the $321.2
million in GBV from the nine months ended September 30, 2019 . The increase in
our GBV was primarily due to the continued increase in U.S. domestic travel
demand. Similar to bookings, the GBV improvement was largely driven by stronger
results in the U.S. , as our international markets remained slower to recover.
For additional information regarding the impact of the COVID-19 pandemic on our
business, see " - Impact of COVID-19 ." Growth in GBV represents increasing
activity on our platform from repeat and new pet parents and may differ slightly
from bookings growth depending on the mix of daytime and overnight services for
each period.
37
--------------------------------------------------------------------------------
Table of Contents
Third Quarter 2021 Financial and Business Highlights
•Revenue of approximately $35 million , an increase of 165% from the third
quarter of 2020
•Record GBV of approximately $157 million , up 176% from the third quarter of
2020
•Highest new bookings of 259,000, up 179% from the third quarter of 2020
•Cash and cash equivalents was $290.3 million as of September 30, 2021
The third quarter 2021 financial and business highlights below are relative to
the third quarter of 2019, due to the irregularity in our 2020 business metrics
caused by COVID.
•Revenue of approximately $35 million , compared to $26.8 million , an increase of
31%.
•Record GBV of approximately $157 million , up 35% from the third quarter of 2019
•Highest new bookings of 259,000, up 32% from the third quarter of 2019
Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for Rover but also pose risks and challenges, including those discussed below. See Part II, Item 1A of this Quarterly Report titled " Risk Factors ."
Growth of our Base of Pet Parents
Our objective is to attract new pet parents to our platform and to successfully convert them into repeat bookers. We believe that we have a significant opportunity to expand our pet parent base given the size of the market in which we operate. ThroughSeptember 30, 2021 , three million unique pet parents have booked a service on our platform. We attract pet parents to our platform through word of mouth and from a variety of paid marketing channels, such as paid search, social media, video, and other online and offline channels. Over time, as individual markets mature, the strength of word-of-mouth customer acquisition has increased and our marketing spend as a percentage of GBV has decreased.
Repeat Booking Activity
Our aim when we attract a new pet parent is to generate a long lifetime of bookings from that pet parent. We monitor the absolute number of repeat bookings and the percentage of total bookings that are from repeat customers. We define a repeat customer as any customer that has an incremental booking beyond their first. Repeat bookings decreased on an absolute basis in 2020, but increased as a percentage of total bookings due to the decline in our new bookings and overall business resulting from COVID-19. Because of the restrictions put in place on a local geographic basis by local governments the behavior from new and existing customers was depressed. However, as the travel industry recovers, we believe our existing customer base will continue to return resulting in an increase in the percentage of bookings from repeat customers. In the three months endedSeptember 30, 2021 , repeat bookings increased 106% to 1.0 million from the three months endedSeptember 30, 2020 as our business recovered. However, repeat bookings as a percentage of total bookings declined to 80% from 84% as we experienced significant strength in new bookings. While our momentum in new customer acquisitions drove the ratio of repeat customers to new customers down, we believe this ratio highlights the future potential of our existing customer base to return as the marketplace continues to scale and that this ratio will climb back towards a historical norm. We may see a change in the percentage of bookings from repeat customers over time. A change in our ability to attract pet parents to our platform or changes in pet parent behavior could have a significant negative impact on our GBV, revenue and operating results.
Investing in Growth
We plan to invest both in new markets and new offerings. We believe that we can further expand our services to new markets withinNorth America andEurope by carefully targeting locations with high expected demand. We carefully evaluate market demand in specific urban, suburban, and rural areas. This will allow us to better serve both pet parents and pet care providers. We also believe there is an opportunity to expand our services outside of our existing geographic locations into other countries and regions where there is an attractive spend per pet to address. As we invest in new markets, we may extend our marketing 38 -------------------------------------------------------------------------------- Table of Contents payback target in order to accelerate growth in each new market. Our strategy is to continue to evaluate business acquisitions that can accelerate our growth and operating leverage. The timing of acquisitions and related integration will impact our financial results. In addition, we believe that expanding our offerings may help us to better provide more value to our pet parents, improve the ability to attract additional pet parents through additional marketing and advertising spend, and increase the engagement and value of our existing pet parents.
Availability of Rover Care Providers
We attract pet care providers to our platform primarily by word-of-mouth. For the nine months endedSeptember 30, 2021 , we had over 235,000 active pet care providers, up 36% from the same period in 2020. To serve our pet parents in any given market, we need density of providers so that pet parents have options at all price points within an acceptable distance from their home. During certain peak periods, such as holidays, we have faced supply constraints in some markets. In addition, pet care providers have in the past, and may continue to, attempt to or successfully source bookings from us and then complete the transaction off of our platform, and we cannot prevent this activity entirely. While we can use our matching algorithm to identify pet care providers that may attempt to disintermediate Rover in a booking and reduce the chance that those pet care providers are featured to pet parents, we cannot prevent this activity entirely. A change in our ability to attract providers to our platform, enable them to generate income and dissuade them from sourcing bookings off our platform could negatively impact our ability to serve pet parents and, in turn, have a significant negative impact on our GBV, revenue and operating results.
Service Booking Mix
Pet care providers set the price for the services offered on our platform. Overnight services are generally at a higher price point than daytime services. Typically, the first booking on our platform has the highest GBV, as pet parents tend to start with us with a specific need in mind, such as a seven-day trip, that is beyond what they can ask of friends, family, or neighbors. Subsequent bookings tend to be for less total nights or walks as pet parents use our platform for shorter more frequent trips or start using daytime services. As the mix of overnight and daytime services change, and as the number of nights or daytime services in an average booking changes, the GBV per booking will fluctuate. We collect the full GBV at the time the booking is made and recognize revenue at the time that the pet care service begins. We transfer fees earned by pet care providers upon completion of the service. In the case of overnight stays, the average period between booking and service is impacted by seasonality, as pet parents tend to book farther in advance of expected travel in the summer and holidays, and by COVID-19, due to pet parents booking closer to travel dates given uncertainty surrounding pandemic-related restrictions and other impacts.
Earnout and Derivative Warrant Liabilities
OnJuly 30, 2021 ,Nebula Caravel Acquisition Corp. , our legal predecessor company and a special purpose acquisition company sponsored byTrue Wind Capital that closed its initial public offering inDecember 2020 ("Caravel"), consummated the previously announced merger (the "Merger") withLegacy Rover and Fetch Merger Sub, Inc. , aDelaware corporation and a wholly owned subsidiary of Caravel ("Merger Sub"). Pursuant to the Merger, Merger Sub merged with and into Legacy Rover, the separate corporate existence of Merger Sub ceased, and Legacy Rover continued as the surviving corporation in the Merger and as a wholly owned subsidiary of Caravel. At the closing of the Merger, Legacy Rover stockholders were entitled to receive up to 19,734,183 shares ("Rover Earnout Shares") of our Class A common stock subject to the occurrence of certain stock price-based triggers. The triggers with respect to all but 2,192,687 Rover Earnout Shares have been met as ofSeptember 29, 2021 and 17,540,964 Rover Earnout Shares were issued. In addition, Caravel's sponsor subjected 2,461,627 shares ("Sponsor Earnout Shares") to vesting and potential forfeiture tied to the same stock-price-based triggers as the Rover Earnout Shares. All but 492,325 of the Sponsor Earnout Shares vested in the third quarter of 2021. The Rover Earnout Shares and the Sponsor Earnout Shares (collectively "Earnout Shares") are accounted for as liability classified instruments. The Earnout Shares were measured at closing, and subsequently will be measured at each reporting date until settled, or they meet the criteria for equity classification. Changes in the fair value will be recorded as a component of other income (expense), net in the unaudited condensed consolidated statements of operations. The aggregate fair value of the Earnout Shares on the closing date of the Merger was estimated using a Monte Carlo simulation model and was determined to be$228.1 million . For the three months endedSeptember 30, 2021 , we recognized a change in fair value of contingent earnout liability of$71.3 million . As ofSeptember 30, 2021 , the Sponsor Earnout Shares were reclassified to equity. During the fourth 39 -------------------------------------------------------------------------------- Table of Contents quarter our results will be impacted by the change in fair value of the Rover Earnout Shares upon issuance and the subsequent reclassification to equity. See
Note 1 - Organization and Description of Business and N ote
5-Fair Value for further information.
At the closing of the Merger, we assumed 2,574,164 private placement warrants
("Private Warrants") and 5,500,000 public warrants ("Public Warrants" and
collectively "Warrants"). Each whole warrant entitles the holder to purchase one
share of our Class A common stock at a price of $11.50 per share, subject to
adjustments. The Warrants are exercisable at any time commencing December 11,
2020 and terminate five years after completion of the Merger.
The Warrants are accounted for as liability classified instruments and we
concluded that they do not meet the criteria to be classified within
stockholders' equity. The Warrants were measured at closing, and subsequently
will be measured at each reporting date until settled. Changes in the fair value
will be recorded as a component of other income (expense), net in the unaudited
condensed consolidated statements of operations. The aggregate fair value of the
Warrants on the closing date of the Merger was estimated using a Black-Scholes
model and was determined to be $22.0 million .
See Note 2-Summary of Significant Accounting Policies-Earnout Liabilities, Note 2-Summary of Significant Accounting Policies-Derivative Warrant Liabilities, and
Note 5-Fair Value for further information. Public Company Costs As a result of the Merger, we became the successor to anSEC -registered and Nasdaq-listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred, and expect to continue to incur, additional annual expenses as a public company for, among other things, directors' and officers' liability insurance premiums, which are substantial, director fees, and additional internal and external accounting, legal and administrative resources. Components of Results of Operations Revenue We derive revenue principally from fees paid by pet care providers and pet parents for use of our platform, net of discounts and sales tax paid on behalf of pet parents. We also derive revenue from fees paid by pet care providers for background checks in order to be listed on our platform. We recognize revenue related to the facilitation of the connection between pet care providers and pet parents at the start of a booking. Costs and Expenses Cost of Revenue (Exclusive of Depreciation and Amortization Shown Separately) Cost of revenue (exclusive of depreciation and amortization shown separately) includes fees paid to payment processors for credit card and other funding transactions, server hosting costs, internal-use software amortization, third-party costs for background checks for pet care providers, claim costs paid out under the Rover Guarantee program and other direct and indirect costs arising as a result of bookings that take place on our platform. We expect our cost of revenue (exclusive of depreciation and amortization shown separately) will vary from period-to-period on an absolute dollar basis and as a percentage of revenue depending on the timing and pace of recovery of the travel and pet care services market. Operations and Support Operations and support expenses include payroll, employee benefits, stock-based compensation and other personnel-related costs associated with our operations and support team, and third-party costs related to outsourced support providers. This team assists with onboarding new pet service providers, quality reviews of pet care provider profiles, fraud monitoring and prevention across our marketplace, and community support provided via phone, email, and chat to our pet parents and pet service providers. This support includes assistance and responding to pet parents' inquiries regarding the general use of our platform or how to make or modify a booking through our platform. We allocate a portion of overhead costs, which includes lease expense, utilities and information technology expense to operations and support expense based on headcount. Notwithstanding the decrease in operations and support expenses as a result of the restructuring discussed below, we expect that operations and support expense will increase on an absolute dollar basis for the foreseeable future to the extent that we continue to see growth on our platform. Although we will continue to make strategic investments in these areas to ensure we are 40 -------------------------------------------------------------------------------- Table of Contents providing the best customer service possible, we expect these expenses to decrease as a percentage of revenue over the longer term due to better leverage in our operations and increased scale of our marketplace. Marketing Marketing expenses include payroll, employee benefits, stock-based compensation expense and other personnel-related costs associated with our marketing team. These expenses also include digital marketing, brand marketing, public relations, broadcast television, marketing partnerships and other promotions. Digital marketing primarily consists of targeted promotional campaigns through electronic channels, such as social media, search engine marketing and optimization, affiliate programs and display advertising which are focused on pet parent acquisition and brand marketing. In 2020, we significantly curtailed our discretionary marketing spending in response to the COVID-19 pandemic in addition to reducing headcount to our marketing team as part of our restructuring plan. In 2021, we have steadily increased discretionary marketing spending as demand has returned in connection with the vaccine rollout and easing of COVID-19 restrictions. We intend to invest in marketing in the near and medium term to drive new customer acquisition which will likely cause marketing expense to increase as a percentage of revenue relative to recent periods. Product Development Product development expenses include payroll, employee benefits, stock-based compensation expense and other headcount related costs for employees in engineering, design and product management, as well as the maintenance and support costs for technology infrastructure, primarily related to non-revenue generating systems. In 2020, we reduced the headcount in our product development team as part of our restructuring plan. In 2021, we increased the headcount as we invest in our product and engineering efforts. We expect that our product development expense will increase on an absolute dollar basis and will vary from period-to-period as a percentage of revenue for the foreseeable future as we continue to invest in product development activities relating to ongoing improvements and maintenance of our technology platform. We expect these expenses to decrease as a percentage of revenue over the longer term due to better leverage in our operations. The costs incurred in the preliminary stages of website and software development related to the platform are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized as internal-use software and amortized on a straight-line basis over their estimated useful lives. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful lives. Amortization expense related to capitalized internal-use software is included in cost of revenue (exclusive of depreciation and amortization shown separately). General and Administrative General and administrative expenses include payroll, employee benefits, stock-based compensation expense and other personnel-related costs for employees in corporate functions, as well as management, accounting, legal, corporate insurance and other expenses used to run the business. In 2020, we reduced the headcount in our general and administrative functions as part of our restructuring plan. In 2021, we increased headcount and professional services and software to support our efforts and status as a newly public company and the growth of our business, and returned to a normalized compensation structure with annual compensation increases. We also expanded our director and officer insurance policy due to becoming a public company. We expect to incur additional general and administrative expense to support operating as a public company and the overall expected growth in our business. While these expenses may vary from period-to-period as a percentage of revenue, we expect them to decrease as a percentage of revenue over the longer term. Depreciation and Amortization Depreciation and amortization expenses include depreciation of our property and equipment, leasehold improvements and amortization of our intangible assets. Amortization related to our internal-use software is included in cost of revenue (exclusive of depreciation and amortization shown separately). Restructuring In response to the impact of COVID-19, we implemented a number of measures to minimize cash outlays, implementing a restructuring plan inApril 2020 whereby approximately 50% of employees were terminated or put on standby. In connection 41 -------------------------------------------------------------------------------- Table of Contents with this restructuring, we incurred severance-related and legal costs, and modified the terms of stock options previously awarded to impacted employees. Other Income (Expense), Net Interest Income Interest income consists primarily of interest earned on our cash, cash equivalents, and short-term investments. Interest Expense Interest expense consists of interest on our borrowing arrangements and the amortization of debt discounts and deferred financing costs. Loss on Impairment ofDogHero Investment Consists of our write-down of our investment in DogHero, a pet care marketplace based inBrazil . Change in Fair Value of Earnout Liabilities Consists of the change in fair value of our contingent earnout liability. See "-Factors Affecting Our Performance-Earnout and Derivative Warrant Liabilities." Change in Fair Value of Derivative Warrant Liabilities Consists of the change in fair value of our Class A common stock warrant liabilities. See "-Factors Affecting Our Performance-Earnout and Derivative Warrant Liabilities." Other Income (Expense), Net Other income (expense), net consists primarily of realized and unrealized gains and losses on foreign currency transactions and realized gains and losses on sales of our securities. 42 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented: Nine Months Ended Three Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) Revenue$ 35,153 $ 13,260 $ 71,831 $ 35,632 Costs and expenses(1): Cost of revenue (exclusive of depreciation and amortization shown separately below) 8,036 4,322 18,494 15,949 Operations and support 4,199 2,460 9,916 9,997 Marketing 6,403 2,403 13,532 13,899 Product development 5,033 4,355 14,586 18,093 General and administrative 8,899 4,958 21,266 15,761 Depreciation and amortization 1,873 2,105 5,572 6,967 Total costs and expenses 34,443 20,603 83,366 80,666 Income (Loss) from operations 710 (7,343) (11,535) (45,034) Other income (expense), net: Interest income 19 22 28 483 Interest expense (1,534) (1,185) (2,933) (2,443) Loss from impairment of DogHero investment - (2,000) - (2,000) Change in fair value of earnout liabilities (71,318) - (71,318) - Change in fair value of derivative warrant liabilities (12,261) - (12,261) - Other income (expense), net (116) 77 (194) (111) Total other expense, net (85,210) (3,086) (86,678) (4,071) Loss before income taxes (84,500) (10,429) (98,213) (49,105) Benefit from (provision for) income taxes (36) 70 280 122 Net loss$ (84,536) $ (10,359) $ (97,933) $ (48,983) __________________ (1) Costs and expenses include stock-based compensation expense as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (in thousands) Operations and support $ 43$ 100 $ 144 $ 261 Marketing 71 123 238 348 Product development 287 510 981 1,459 General and administrative 593 1,056 1,779 2,200
Total stock-based compensation expense $ 994
43
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth the components of our consolidated statements of
operations for each of the periods presented as a percentage of revenue:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue 100 % 100 % 100 % 100 %
Costs and expenses:
Cost of revenue (exclusive of depreciation
and amortization shown separately below) 23 33 26 45
Operations and support 12 19 14 28
Marketing 18 18 19 39
Product development 14 33 20 51
General and administrative 25 37 30 44
Depreciation and amortization 5 16 8 20
Total costs and expenses 97 156 117 227
Income (Loss) from operations 3 (56) (17) (127)
Other income (expense), net:
Interest income - - - 1
Interest expense (4) (9) (4) (7)
Loss from impairment of DogHero investment - (15) - (6)
Change in fair value of earnout liabilities (203) - (99) -
Change in fair value of derivative warrant
liabilities (35) - (17) -
Other income (expense), net - 1 - -
Total other expense, net (242) (23) (120) (12)
Loss before income taxes (239) (79) (137) (139)
Benefit from (provision for) income taxes - (1) - -
Net loss (239) % (80) % (137) % (139) %
Comparisons for the Three and Nine Months Ended September 30, 2021 and 2020
Revenue
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 % Change 2021 2020 % Change
(in thousands, except for percentages)
Revenue $ 35,153 $ 13,260 165 % $ 71,831 $ 35,632 102 %
Revenue increased $21.9 million , or 165%, in the three months ended September
30, 2021 as compared to the three months ended September 30, 2020 . The increase
was primarily due to a 118% increase in the number of bookings on our platform
and a 27% increase in the average booking value. Demand for overnight and
daytime pet care during the three months ended September 30, 2020 was negatively
impacted by various state and local restrictions that followed the onset of the
COVID-19 pandemic. As those restrictions eased and more pet parents travelled
again relative to the prior year period, the service mix has shifted back to
higher average booking value overnight services in the three months ended
September 30, 2021 .
Revenue increased $36.2 million , or 102%, in the nine months ended September 30,
2021 as compared to the nine months ended September 30, 2020 . The increase in
revenue was primarily due to a 62% increase in the number of bookings on our
platform and a 25% increase in the average booking value per booking. Demand for
overnight and daytime pet care is primarily linked to pet parents traveling or
working outside of the home, both of which were negatively impacted by the onset
of the COVID-19 pandemic and the various state and local restrictions that
followed during the nine months ended September 30, 2020 . As individuals became
more comfortable with traveling again or local restrictions eased, more pet
parents began to travel
44
--------------------------------------------------------------------------------
Table of Contents
relative to the prior year resulting in an increasing average booking value as
overnight services normalized as a proportion of service mix during the nine
months ended September 30, 2021 .
Costs and Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 % Change 2021 2020 % Change
(in thousands, except for percentages)
Costs and expenses:
Cost of revenue (exclusive of
depreciation and amortization shown
separately below) 8,036 4,322 86 % 18,494 15,949 16 %
Operations and support 4,199 2,460 71 9,916 9,997 (1)
Marketing 6,403 2,403 166 13,532 13,899 (3)
Product development 5,033 4,355 16 14,586 18,093 (19)
General administrative 8,899 4,958 79 21,266 15,761 35
Depreciation and amortization 1,873 2,105 (11) 5,572 6,967 (20)
Total costs and expenses 34,443 20,603 67 % 83,366 80,666 3 %
Cost of Revenue (Exclusive of Depreciation and Amortization Shown
Separately). Cost of revenue (exclusive of depreciation and amortization shown
separately) increased $3.7 million , or 86%, in the three months ended September
30, 2021 as compared to the three months ended September 30, 2020 . The increase
in cost of revenue (exclusive of depreciation and amortization shown separately)
was the result of a 165% increase in revenue, as well as an 118% increase in
bookings and related platform activity as the business continues to recover from
the COVID-19 pandemic. The increase includes a $2.2 million increase in merchant
fees, a $0.7 million increase in customer claim costs related to the Rover
Guarantee program, a $0.4 million increase in technology platform costs, and a
$0.2 million increase in pet care provider background check costs.
Cost of revenue (exclusive of depreciation and amortization shown separately)
increased $2.5 million , or 16%, in the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020 . The increase in cost of
revenue (exclusive of depreciation and amortization shown separately) was the
result of a 102% increase in revenue as the business continues to recover from
the COVID-19 pandemic. The increase includes a $4.0 million increase in merchant
fees, a $1.0 million increase in customer claim costs related to the Rover
Guarantee program, partially offset by the acceleration of amortization of $2.6
million in internal-use software related to the Rover Now service, which was
discontinued and is recorded in cost of revenue (exclusive of depreciation and
amortization shown separately) in the consolidated statements of operations in
2020.
Operations and Support. Operations and support expenses increased $1.7 million ,
or 71%, in the three months ended September 30, 2021 as compared to the three
months ended September 30, 2020 . The increase in operations and support expense
was primarily due to a $0.4 million increase in personnel-related costs for the
operations and support team as well as a $1.0 million increase in third-party
costs related to outsourced support providers in response to changes in demand
for our platform as illustrated by the 118% increase in the number of bookings
and related platform activity as the business continues to recover from the
COVID-19 pandemic. The increase also consisted of a $0.3 million increase in the
allocation of overhead costs.
Operations and support expenses remained flat for the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 . This
was partially due to the higher operations and support costs prior to the
implementation of our restructuring plan in the three months ended March 31,
2020 . Following that restructuring plan, we have been investing back into
operations and support in conjunction with the increase in activity on the
platform as the business continues to recover from the COVID-19 pandemic.
Marketing. Marketing expenses increased $4.0 million , or 166%, in the three
months ended September 30, 2021 as compared to the three months ended September
30, 2020 . The increase in marketing expenses was primarily due to a $3.7 million
increase in discretionary marketing costs as we invest in new customer
acquisition as demand for pet care services continues to recover from the
COVID-19 pandemic. The increase was also due to a $0.2 million increase in
personnel costs, and a $0.2 million increase in professional services costs.
45
--------------------------------------------------------------------------------
Table of Contents
Marketing expenses decreased $0.4 million , or 3%, in the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 . The
decrease in marketing expenses was the net result of a $2.0 million reduction in
personnel-related costs as a result of the implementation of our restructuring
plan, offset by the $1.6 million increase in advertising spend as we
strategically invest in new customer acquisition as demand for pet care services
continues to recover from the COVID-19 pandemic.
Product Development. Product development expenses increased $0.7 million , or
16%, in the three months ended September 30, 2021 as compared to the three
months ended September 30, 2020 . The increase was primarily due to an increase
in personnel-related expenses as we continued to invest in our product and
engineering efforts to improve our customers' experiences with the platform.
Product development expenses decreased $3.5 million , or 19%, in the nine months
ended September 30, 2021 as compared to the nine months ended September 30,
2020 . The decrease was the net result of a $3.5 million reduction in
personnel-related costs in the nine months ended September 30, 2021 as a result
of the implementation of our restructuring plan as compared to the nine months
ended September 30, 2020 .
General and Administrative. General and administrative expenses increased $3.9
million , or 79%, in the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020 . The increase in general and
administrative expenses was due to a $1.6 million increase in personnel costs, a
$0.6 million increase in insurance expense and a $0.3 million increase of
professional fees, all of which are needed to support Rover as a public company.
Additionally, general and administrative expense includes $1.3 million of
professional services related to noncapitalizable, one-time, merger-related
costs.
General and administrative expenses increased $5.5 million , or 35%, in the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020 . The increase in general and administrative expenses was due to a $2.3
million increase of professional services related to the merger, $2.2 million
increase in personnel costs as we invest in and support operating as a public
company as well as the overall expected growth in our business, $0.4 million
increase of insurance expense related to the expansion of our directors and
officers insurance policy, and $0.3 million increase of tax expense.
Depreciation and Amortization. Depreciation and amortization decreased $0.2
million , or 11%, in the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020 . The decrease in depreciation and
amortization expenses was due to a decrease in intangible asset amortization
expense as a result of certain intangible assets related to the DogVacay and
Barking Dog Ventures acquisitions reaching the end of their useful lives.
Depreciation and amortization decreased $1.4 million , or 20%, in the nine months
ended September 30, 2021 as compared to the nine months ended September 30,
2020 . The decrease in depreciation and amortization expenses was due to a
decrease in intangible asset amortization expense as a result of certain
intangible assets related to the DogVacay and Barking Dog Ventures acquisitions
reaching the end of their useful lives.
Other Income (Expense), Net
Interest Income. Interest income was flat for the three months ended September
30, 2021 as compared to the three months ended September 30, 2020 .
Interest income decreased $0.5 million , or 94%, in the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 . The
decrease was primarily related to a decline in interest rates year over year as
well as a decrease in longer term investments.
Interest Expense. Interest expense increased $0.3 million , or 29%, for the three
months ended September 30, 2021 as compared to the three months ended September
30, 2020 . The increase in interest expense was the result of the acceleration of
amortization of debt issuance costs related to the repayment of our outstanding
debt. As of September 30, 2021 , the Company had no outstanding debt and had
terminated our revolving credit facility.
Interest expense increased $0.5 million , or 20%, for the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 . The
increase in interest expense was primarily the result of the acceleration of
amortization of debt issuance costs related to the repayment of our outstanding
debt.
Loss from Impairment of DogHero Investment . The $2.0 million decrease was due to
the write-down of our investment in DogHero, a pet care marketplace based in
Brazil , for the three and nine months ended September 30, 2020 .
46
--------------------------------------------------------------------------------
Table of Contents
Change in Fair Value of Earnout Liabilities. Change in fair value of earnout
liabilities increased $71.3 million for the three and nine months ended
September 30, 2021 as compared to the three and nine months ended September 30,
2020 . We recognized a change in fair value of contingent earnout liability of
$71.3 million due to the increase in the fair value of our Class A common stock
after consummation of the Merger.
Change in Fair Value of Derivative Warrant Liabilities. Change in fair value of
derivative warrant liabilities increased $12.3 million for the three and nine
months ended September 30, 2021 as compared to the three and nine months ended
September 30, 2020 . We recognized a $12.3 million loss due to the change in the
fair value of our Class A common stock warrants during the respective period the
warrants were outstanding.
Non-GAAP Measures-Adjusted EBITDA
We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, net income (loss), loss from operations, and other results under GAAP, we use Adjusted EBITDA, which is described below, to evaluate our business.
We use Adjusted EBITDA for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. We believe that this non-GAAP financial measure, when taken together with its most directly comparable GAAP measure, net income (loss), provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to this non-GAAP financial measure in assessing our performance and when planning, forecasting, and analyzing future periods. This non-GAAP financial measure also facilitates management's internal comparisons to our historical performance. We believe this non-GAAP financial measure is useful to investors both because (1) it allows for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) it is used by our institutional investors and the analyst community to help them analyze the health of our business. Accordingly, we believe that this non-GAAP financial measure provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Non-GAAP financial measures have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for, financial information prepared in accordance with GAAP. For example, our calculation of Adjusted EBITDA may differ from similarly titled non-GAAP measures, if any, reported by our peer companies, or our peer companies may use other measures to calculate their financial performance, and therefore our use of Adjusted EBITDA may not be directly comparable to similarly titled measures of other companies. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recorded in our financial statements. In addition, it is subject to inherent limitations as it reflects the exercise of judgments by management about which expense and income are excluded or included in determining this non-GAAP financial measure. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. In addition, such financial information is unaudited and does not conform to SEC Regulation S-X and as a result such information may be presented differently in our future filings with theSEC . For example, due to warrant and earnout liabilities resulting from the Merger, we now exclude change in fair value, net from net loss in our Adjusted EBITDA calculation, which had not been done in prior periods. Moreover, the three and nine months endedSeptember 30, 2020 calculations exclude an impairment loss not reflected in other quarters. We define Adjusted EBITDA as net loss excluding depreciation and amortization, stock-based compensation expense, interest expense, interest income, change in fair value, net, other income (expense), net, income tax expense or benefit, and non-routine items such as restructuring, investment impairment, and certain merger and acquisition-related costs. We believe that this non-GAAP financial measure, when taken together with the correspondingU.S. GAAP financial measure, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. We believe that the use of Adjusted EBITDA is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance.
Adjusted EBITDA margin as presented below is Adjusted EBITDA divided by revenue.
47--------------------------------------------------------------------------------
Table of Contents
[[Image Removed: rovr-20210930_g3.jpg]]
In the three months ended September 30, 2021 , Adjusted EBITDA was $6.6 million ,
an improvement of $7.8 million compared to ($1.2) million in the three months
ended September 30, 2020 . This improvement was primarily due to a 118% increase
in total bookings and an increase in average booking value, as our marketplace
scaled and pet parents traveled more which improved revenue. In the three months
ended September 30, 2020 , Adjusted EBITDA was ($1.2) million , primarily due to
the impact of the COVID-19 pandemic on our marketplace and the subsequent
cost-cutting actions during that period. For additional information regarding
the impact of the COVID-19 pandemic on our business, see " -Impact of
COVID-19 " and "-Components of Results of Operations-Restructuring."
The following table presents a reconciliation of Adjusted EBITDA from net
loss for the three and nine months ended September 30, 2020 and 2021:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Revenue $ 35,153 $ 13,260 $ 71,831 $ 35,632
Adjusted EBITDA reconciliation:
Net loss $ (84,536) $ (10,359) $ (97,933) $ (48,983)
Add (deduct):
Depreciation and amortization (1) 3,638 3,857 10,815 15,099
Stock-based compensation expense (2) 994 1,789 3,142 4,268
Interest expense 1,534 1,186 2,933 2,443
Interest income (19) (22) (28) (483)
Loss from impairment of DogHero investment - 2,000 - 2,000
Change in fair value, net (5) 83,579 - 83,579 -
Other (income) expense, net 116 (77) 194 111
Income tax (benefit) expense 36 (70) (280) (122)
Restructuring expense (3) - 511 - 3,750
Acquisition and merger-related costs (4) 1,280 - 2,336 31
Adjusted EBITDA $ 6,622 $ (1,185) $ 4,758 $ (21,886)
Adjusted EBITDA margin (6) 19 % (9) % 7 % (61) %
48-------------------------------------------------------------------------------- Table of Contents __________________ (1)Depreciation and amortization include amortization expense related to capitalized internal use software, which is recognized as cost of revenue (exclusive of depreciation and amortization shown separately) in the consolidated statements of operations. (2)Stock-based compensation expense includes equity granted to employees as well as for professional services to non-employees. (3)Restructuring costs include expenses for severance-related and legal costs incurred during the implementation of our restructuring plan. (4)Acquisition and merger-related costs include accounting, legal, consulting and travel related expenses incurred in connection with the merger and business combinations. (5)Change in fair value, net includes the mark-to-market adjustments related to the earnout and warrant liabilities. (6)Adjusted EBITDA margin is Adjusted EBITDA divided by revenue. Liquidity and Capital Resources As ofSeptember 30, 2021 , we had$290.3 million of cash and cash equivalents, which were primarily invested in money market funds. This represents an increase of$209.5 million fromDecember 31, 2020 due to the$235.6 million of net proceeds from the Merger. See Note 3 - Reverse R ecapitalization
.
As a result of the terminations of our credit agreements during the three months endedSeptember 30, 2021 , we no longer have any outstanding debt or existing credit agreements. Since inception, we have incurred operating losses and negative operating cash flows and have financed our operations through the sale of equity securities, the incurrence of debt and the cash proceeds from the Merger. For the nine months endedSeptember 30, 2021 , we incurred operating losses of$(11.5) million but generated positive operating cash flows of$20.6 million . We expect that operating losses and negative operating cash flows could continue into the foreseeable future as we continue to invest in growing our business. Based upon our current operating plans, we believe that cash and equivalents and short-term investments will be sufficient to fund our operations for at least the next 12 months from the date of this Quarterly Report. However, these forecasts involve risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including, but not limited to our ability to grow our revenues and the impact of the COVID-19 pandemic and other factors described in " Risk Factors ". We may seek additional equity or debt financing. If additional financing is required from outside sources, we may not be able to raise it 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. Credit Facility InMay 2018 , we entered into a credit facility withSilicon Valley Bank , or SVB, consisting of a revolver and term loan borrowings. Our obligation under the credit facility was secured by substantially all of our assets. The credit facility contained customary conditions to borrowing, events of default and covenants restricting our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, incur indebtedness or grant liens or negative pledges on our assets, make loans or make other investments. The credit facility also contained minimum liquidity and minimum net revenue financial covenants that were applicable if our overall liquidity did not exceed$65.0 million at the end of a reporting period. We were in compliance with all of our covenants under the credit facility as ofDecember 31, 2020 . InMarch 2021 , the credit facility was amended to provide that the minimum liquidity and minimum net revenue financial covenants would be applicable if overall liquidity does not exceed$65.0 million at the end of the reporting period. The revolving line of credit provided for up to$15.0 million principal amount of borrowings and was set to mature inMay 2022 . Interest was payable monthly and accrued at the greater of (1) 4.5% and (2) prime rate plus a margin of 0.50% per year, or if certain milestones are achieved, greater of (1) 4.0% and (2) the prime rate. As ofDecember 31, 2020 , these milestones had not been met. We were required to pay a quarterly fee in an amount equal to 0.30% per year times the average unused portion of the revolving line credit. During the year endedDecember 31, 2020 , we had incurred$11.4 million in revolver borrowings, issued a$3.5 million letter of credit primarily for the security deposit on ourSeattle headquarters, which reduced available revolver borrowings, we repaid the$11.4 million revolver borrowings, and had$11.4 million in available revolver borrowings as ofDecember 31, 2020 . As ofSeptember 30, 2021 , we had repaid in full all amounts owed under the facility, terminated all commitments and obligations under the revolving line of credit, were released from all security interests, mortgages, liens and encumbrances under the credit facility, and retained an unsecured$3.5 million letter of credit for the security deposit on ourSeattle headquarters andSpokane office space. The credit facility also provided for up to$15.0 million principal amount of term borrowings, and was available untilJune 30, 2021 , which could have been incurred in three tranches of up to$5.0 million based upon achievement of revenue milestones. Term borrowings matured inJune 2024 . Interest was payable monthly and accrued at the greater of (1) 5.0% and (2) prime rate plus a margin of 1.0% per year, or if certain milestones were achieved, greater of (1) 4.5% and (2) the prime rate plus a margin 49 -------------------------------------------------------------------------------- Table of Contents of 0.5% per year. Term borrowings were interest only throughJune 2021 . Beginning inJuly 2021 and continuing through the maturity date, principal and interest were payable in equal monthly installments. Principal that had been repaid could not be reborrowed. During 2020, we had drawn on the$15.0 million growth capital advance and repaid the outstanding balance. AtSeptember 30, 2021 , there were no amounts outstanding, and we could no longer borrow under the growth capital advance component of the credit facility. Subordinated Credit Facility InAugust 2019 , we entered into a subordinated credit facility with SVB and another lender which provided for up to$30.0 million principal amount of term borrowings untilJune 30, 2020 in tranches of at least$5.0 million . The subordinated credit facility had a maturity date ofAugust 2022 . Interest was payable monthly and accrued at a rate equal to the prime rate plus a margin of 4.25% per year. Borrowings were interest only through the maturity date when the outstanding principal amount and accrued interest must be repaid. The principal amount could have been repaid at any time with a premium. Principal that had been repaid could not be reborrowed. Our obligations under the subordinated credit facility were secured by substantially all of our assets. The subordinated credit facility contained customary conditions to borrowing, events of default and restrictive covenants that were substantially similar to our credit facility. As of the closing of the Merger onJuly 30, 2021 , we were in compliance with all of our covenants under the subordinated credit facility. In connection with the closing of the Merger, we repaid in full the principal and accrued interest on the subordinated credit facility and terminated all commitments and obligations under the credit facility. Paycheck Protection Program Loan InApril 2020 , we entered into a Paycheck Protection Program Promissory Note and Agreement with SVB, pursuant to which we incurred$8.1 million aggregate principal amount of term borrowings (the "PPP Loan"). The PPP Loan was made under, and was subject to the terms and conditions of, the PPP which was established under the CARES Act and is administered by theU.S. Small Business Administration . The term of the PPP Loan was two years with a maturity date ofApril 2022 and accrued interest at a rate of 1.00% per year. Interest was payable monthly. Payments of principal and interest on the PPP Loan were deferred for the first 16 months of the term of the PPP Loan untilAugust 2021 . In connection with the closing of the Merger onJuly 30, 2021 , we repaid in full the principal and accrued interest on, and terminated all commitments and obligations under, the PPP Loan. Cash Flows The following table summarizes our cash flows for the periods indicated. Nine Months Ended September 30, 2021 2020 (in thousands) Net cash provided by (used in): Operating activities$ 20,606 $ (52,693) Investing activities (5,147) 27,218 Financing activities 194,035 38,284
Effect of foreign exchange on cash, cash equivalents and restricted cash
(15) (11)
Net increase in cash, cash equivalents and restricted cash
Operating Activities Net cash provided by operating activities was$20.6 million for the nine months endedSeptember 30, 2021 . The most significant component of our cash provided by operations was a net loss of$97.9 million which included non-cash expense related to the change in fair value of earnout and warrant liabilities of$83.6 million , depreciation and amortization totaling$10.8 million , stock-based compensation of$3.1 million and$1.5 million of non-cash operating lease costs. Additionally operating assets and liabilities increased primarily as a result of an increase of$25.3 million in deferred revenue, pet parent deposits, and pet service provider liabilities due to increased payments received from customers in advance of revenue recognition. 50 -------------------------------------------------------------------------------- Table of Contents Net cash used in operating activities was$52.7 million for the nine months endedSeptember 30, 2020 . The most significant component of our cash used was a net loss of$49.0 million . This included non-cash expense related to stock-based compensation of$4.3 million and depreciation and amortization totaling to$15.1 million . In addition, a cash outflow totaling$25.6 million was attributable to changes in operating assets and liabilities, primarily as a result of a decrease of$20.1 million in deferred revenue, pet parent deposits, and pet service provider liabilities due to decreased bookings along with revenue recognized from amounts billed and collected in prior periods, and a decrease of$3.9 million in accounts payable as a result of timing of payments to vendors. Investing Activities Net cash used in investing activities for the nine months endedSeptember 30, 2021 was$5.1 million , which was primarily driven by our investment in internal-use software of$4.6 million and purchase of property and equipment of$0.6 million . Net cash provided by investing activities for the nine months endedSeptember 30, 2020 was$27.2 million , which was primarily due to net short-term investment cash inflows of$33.2 million , offset by purchases of property and equipment of$0.7 million , and investment in internal-use software of$5.2 million . Financing Activities Net cash provided by financing activities for the nine months endedSeptember 30, 2021 was$194.0 million , which primarily consisted of$235.6 million of net proceeds related to the reverse recapitalization resulting from the Merger, partially offset by$38.1 million of repayment of borrowings on our credit facilities. Net cash provided by financing activities for the nine months endedSeptember 30, 2020 was$38.3 million , which was primarily due to net proceeds from borrowings under our credit facilities. Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these uncondensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. The inputs to our significant accounting policies are based on judgments, assumptions and estimates. Many of our estimates could require increased judgment and carry a higher degree of variability and volatility based on current economic conditions. As events continue to evolve our estimates may change materially in future periods. While our significant accounting policies are described in more detail in Note 2 - Summary of Significant Accounting P olicies to our consolidated financial statements, we believe the following accounting estimates to be most critical to the preparation of our consolidated financial statements. Except as described below, there have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates disclosed in our prospectus filed pursuant to Rule 424(b) under the Securities Act with theSEC onSeptember 23, 2021 (File No. 333-259519). Earnout Shares For a description of the Earnout Shares, see "-Factors Affecting Our Performance-Earnout and Derivative Warrant Liabilities." At the closing of the Merger, the Earnout Shares were not indexed to the common stock of the Company and, therefore, were accounted for as liability classified instruments in accordance with ASC 815-40, as the events that determine the number of Earnout Shares required to be released or issued, as the case may be, include events that are not solely indexed to the fair value of common stock of the Company. The Earnout Shares will be measured at fair value at each reporting date until they are settled or meet the criteria for equity classification, and changes in the fair value will be recorded as a component of other income (expense), net in the unaudited condensed consolidated statements of operations. The fair value of the Earnout Shares liability is estimated using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of a peer group of public companies. 51 -------------------------------------------------------------------------------- Table of Contents The Company has historically been a private company and has limited company-specific historical and implied volatility information. Accordingly, the volatility assumption used in the model is subjective and requires significant management judgment. Management estimated the expected volatility assumption based on the implied common stock volatilities of a set of publicly traded peer companies. Changes in this assumption, including the selection of or quantities of companies with the peer company set, could materially affect the estimate of the fair value of these instruments and the related change in fair value of these instruments that will be recorded in the Company's unaudited condensed consolidated statements of operations. Derivative Warrant Liabilities At the closing of the Merger, the Company assumed 2,574,164 private placement warrants ("Private Warrants") and 5,500,000 public warrants ("Public Warrants" and collectively "Warrants"). Each whole warrant entitles the holder to purchase one share of the Company's Class A common stock at a price of$11.50 per share, subject to adjustments. The Warrants are exercisable at any time commencing on the later of a) 30 days after the completion of the Merger onJuly 30, 2021 and b) 12 months from the date of the closing of Caravel's initial public offering onDecember 11, 2020 and terminating five years after completion of the Merger. The agreement governing the Warrants includes a provision that could result in a different settlement value for the Warrants depending on their holder. Because the holder of an instrument is not an input into the pricing of a fixed-for-fixed option on the Company's ordinary shares, the Private Warrants are not considered to be "indexed to the Company's own stock." In addition, the provision provides that in the event of a tender or exchange offer accepted by holders of more than 50% of the outstanding shares of the Company's ordinary shares, all holders of the Warrants (both the Public Warrants and the Private Warrants) would be entitled to receive cash for all of their Warrants. Specifically, in the event of a qualifying cash tender offer (which could be outside of the Company's control), all Warrant holders would be entitled to cash, while only certain of the holders of the Company's ordinary shares may be entitled to cash. These provisions preclude the Company from classifying the Warrants in stockholders' equity. Since the Warrants meet the definition of a derivative, the Company initially recorded the Warrants as liabilities on the unaudited condensed consolidated balance sheet at fair value, with subsequent changes in the fair value recognized in the unaudited condensed consolidated statements of operations at each reporting date. The fair value of the Public Warrants will be estimated at each measurement date using a Monte Carlo simulation valuation model based on multiple inputs, including the implied volatility of the Public Warrants, among others. The Company has historically been a private company and has limited company-specific historical and implied volatility information. Accordingly, the volatility assumption used in the model requires significant management judgment. Changes in this assumption could materially affect the estimate of the fair value of the Private Warrants and the related change in fair value of these instruments that will be recorded in the Company's unaudited condensed consolidated statements of operations. Recent Accounting Pronouncements See Note 2 - Summary of Signi fi cant Accounting P olicies
to
our condensed consolidated financial statements included elsewhere in this Quarterly Report for recently issued accounting pronouncements not yet adopted, recently accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations as of the date of this report. JOBS Act Accounting Election We are an "emerging growth company," as defined in the JOBS Act. The JOBS Act permits companies with emerging growth company status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We expect to use this extended transition period to enable it to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.
In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act.
52--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
