Care.com Q12015 Earnings Transcript ( PDF 119 KB )

Care.com
First Quarter 2015 Earnings Results Conference Call
May 12, 2015
Operator:
Greetings. Welcome to the Care.com First Quarter 2015 Earnings Results conference
call. At this time, all participants are in a listen-only mode. A brief question and answer
session will follow the formal presentation. If anyone should require Operator
assistance during the conference, please press star, zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Denise Garcia of ICR. Thank you. You
may begin.
Denise Garcia:
Thank you Christine. Good morning and welcome to Care.com’s financial results call
for the fiscal quarter and year ended March 28, 2015
During the course of this conference call, we will discuss our business outlook and
make other forward-looking statements within the meaning of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. These may include,
among other things, projected financial results or operating metrics, anticipated
business and marketing investments and strategies and expected results of those
investments and strategies, anticipated future products or services, anticipated market
demand or opportunities for our products and services and other forward-looking topics.
Such statements are only predictions based on Management’s current expectations.
Actual results or events could differ materially from those predictions due to a number of
risks and uncertainties, including those set forth in the press release we issued this
morning, as well as those more fully described in our filings with the Securities and
Exchange Commission. In addition, any forward-looking statements represent our
views only as of today and should not be relied upon as representing our views as of
any subsequent date. While we may elect to update these forward-looking statements
at some point in the future, we specifically disclaim any obligation to do so even if our
views change; therefore, you should not rely on these forward-looking statements as
representing our views as of any date subsequent to today.
We will also be referring to non-GAAP measures on this call, including Adjusted
EBITDA, which we refer to as EBITDA throughout this presentation. EBITDA
represents pre-tax net loss, less depreciation and amortization, as well as certain other
non-cash adjustments. These non-GAAP measures are not prepared in accordance
with generally accepted accounting principles. Reconciliations to the most directly
comparable GAAP financial measures are provided in the tables in the press release
and Form 8-K filed this morning.
Today’s call is available via webcast and a telephone replay will be available for one
week following the conclusion of the call. To access the press release, supplemental
and financial information or the webcast replay, please consult the IR section of
Care.com.
With that, let me turn the call over to Sheila Lirio Marcelo, Founder, Chairwoman, and
CEO of Care.com.
Sheila Lirio Marcelo:
Thanks, Denise. Good morning. Thank you all for joining us today. I’ll walk you
through our first quarter financial highlights and the progress we’ve made against the
key priorities we outlined last quarter. Following my prepared remarks I'll open the call
for questions.
Before we begin, I would like to remind everyone that throughout my remarks this
morning when I refer to break-even or profitability, I am referring to these items on an
Adjusted EBITDA basis. As we mentioned last quarter, our key priorities include a focus
on product development such as mobile optimization and pricing and package testing
and our path to break even by mid 2016 and profitability by the end of 2016.
I'm excited to share more details with you in a moment. Before I do, I'll review our
consolidated quarterly highlights and financial details for the US Matching and
Payments businesses.
We continue to drive top line growth as the leading online destination for finding and
managing family care in a market consisting of 42 million families in the US alone while
also increasing operating leverage
.
For the first quarter revenue grew to $35.1 million, a 39% increase over Q1 2014 on a
consolidated basis and a 27% increase organically. That is, excluding Citrus Lane,
which we acquired in July 2014.
First quarter net loss was $12 million as compared to a net loss of $15.5 million in the
first quarter of 2014. This represents margin improvement of 27 percentage points.
Excluding the impact of Citrus Lane, net margin improvement was 31 percentage
points.
On an Adjusted EBITDA basis for the consolidated business, the first quarter 2015 loss
was $7.1 million which exceeded our Q1 guidance of a loss of $8.2 million to $7.6
million. This compares to an Adjusted EBITDA loss of $9.6 million in the first quarter of
2014. The resulting margin improvement was 18 percentage points. Excluding the
impact of Citrus Lane, Adjusted EBITDA margin improvement was 21 percentage
points. These results were driven largely by our US Matching and Payment businesses
which together made up roughly 80% of our revenue, saw 27% growth versus Q1 of
2014, and were break even on operating income and profitable on Adjusted EBITDA for
the second quarter in a row.
In US Matching we ended the quarter with over 230,000 paying members representing
a 28% increase over Q1 2014. We expect US Matching, end of period paying member
growth for the full year of between 20% and 25%. For the first quarter, US Matching
revenue grew 26% to $22.6 million up from $18 million in the first quarter of 2014. One
of our high growth channels of recurring revenue for the US Matching business is
Workplace Solutions. We continue to grow our Workplace Solutions client base. Recent
additions include The Gap, Boston Medical Center and Quick Trip. .
As we mentioned on our last call, we are investing resources in a handful of mobile
studios to drive traffic and member growth and engagement. These studios have
dedicated product and engineering teams focused on agile innovation. One of these
studios is working on transactional use cases such as date night, leveraging our
ongoing investments in transactional platform modules, availability, bookings and
payments.
We believe that apps designed to address these use cases which we'll be rolling out
over the course of the year will drive incremental demand from families. Another studio
is focused on our Care.com Everyday Strategy through community engagement. We
expect to launch a Parenting Community app in Q2.
Average monthly revenue per user for our US Matching business was $34.42 in Q1
roughly in line with last the year's $35.03 for Q1 2014. In Q2, we're continuing to test
bundled pricing and packaging in both our Matching and Payments businesses thereby
diversifying our offerings to more specifically target our members' needs, such as with
our Nanny Premium offering. With a goal of improving overall ARPU and eventually
conversion. We expect to discuss learnings from these tests in upcoming quarters. We
estimate our US Matching latest cohort’s length of paid time at 8.6 months. More details
regarding cohort information can be found on the Investor Relations website.
In our US Payments business, known as Care.com HomePay which continues to be
highly profitable. We grew revenue 31% over Q1 2014 to $5.5 million. For the first
quarter we estimate that over 50% of new Payments members acquired were
influenced by cross-platform initiatives as well as broader Care.com brand marketing.
Care.com HomePay members grew 25% in the first quarter to over 15,400 with ARPU
increasing to $125, a 3 %increase over Q1 '14. Average length of paid time which we
have historically measured at ten-year period is at 41 months.
Our international and B2 B business has delivered combined revenue growth of 28%
versus Q1 '14 or 42% on a constant currency basis to $3.9 million. We're very excited
about these businesses and the growth opportunities they represent as they leverage
the strength of the Care.com platform.
Separately, Citrus Lane revenue was $3.1 million for the quarter, exceeding our scaledback expectations as we continue to work through the model.
We continue to benefit from the power of our platform to drive operating leverage, most
notably in sales and marketing. While our total organic revenue increased 27% in the
quarter, we decreased sales and marketing expenses as a percent of revenue by 17
percentage points, from 81% in Q1 '14 to 64% in Q1 2015. This sales and marketing
leverage comes primarily from significant improvements in the performance of our
unpaid acquisition channels. Year-to-date results are strong, with 59% year-over-year
growth in SEO traffic, driven primarily by our investments in responsive design across
our desktop and mobile web platforms which started in mid 2013. The recent change to
Google's algorithm rewards such design because it yields a consistent and better
experience for users on any device they use. We're continuing to invest in other
initiatives, such as content development, through ongoing product development and our
existing content partnerships with Yahoo Parenting and Zillow to further drive future
organic growth, especially in preparation for our peak season next quarter.
In addition, the increased sales and marketing leverage was driven by our continued
optimization of current paid channels including a 30% lower investment in TV versus Q1
'14 and shifting the marketing mix toward lower cost digital channels such as Facebook
and affiliates. This results in a decrease in total direct marketing spend for the US
Matching and Payments businesses of 15% in the first quarter. Thus, as we leverage
both unpaid and paid marketing channels along with accelerated organic initiatives in
SEO and content development, we are reducing customer acquisition costs. Results to
date are strong, with 67% of member acquisition coming from unpaid marketing
channels, an improvement over 62%in 2014. As we mentioned last quarter, because we
target the same customer for both US Matching and Payments, including integrated
products and marketing programs, we view customer acquisition costs on a blended
basis.
In the first half of 2015, CAC is expected to be 15% lower than in the first half of 2014,
in line with our expectations shared on the last call. And as we discussed in our last
quarterly call, our path to profitability is a key priority, and I'm pleased to share that we
continue to believe we are on track to achieve break-even by mid 2016 and profitability
by the end of 2016. During the first quarter, EBITDA profitability improved 18percentage points year-over-year. Our US Matching and Payments businesses, which
together represented 80% of revenue in the first quarter of 2015, were profitable, with a
combined EBITDA margin of 5%, up 19 percentage points from negative 14% in Q1 of
2014.
Our continuous focus on leveraging sales and marketing spend is a key driver of our
path to profitability. As a percent of revenue, organic sales and marketing spend
decreased from 81% percent last year to 64% this quarter. This meaningful sales and
marketing leverage is reflected in our overall Q1 results. For the quarter, organic
revenue grew 27% year-over-year while organic sales and marketing spend was
roughly flat. We continue to expect total sales and marketing spend as a percentage of
revenue to decline on a year-over-year basis each quarter in 2015 and full year sales
and marketing spends to be below 60 % of revenue. We're excited about our progress
across each of these priorities in our entire business. I'll turn now to guidance.
For the second quarter, we expect consolidated revenue of between $34 million and
$36 million. For our organic businesses we expect revenue of between $31.5 million
and $32.5 million and for Citrus Lane, we expect revenue of between $2.5 million and
$3.5 million for Q2. We expect Q2 consolidated Adjusted EBITDA to be a loss of
between $6.5 million and $5.5 million including a loss from Citrus Lane of roughly $1
million. For the full year we expect consolidated revenue between $146 million and
$155 million. For our organic businesses we expect full year revenue of between $134
million and $141 million and for Citrus Lane we expect full year revenue of between $12
million and $14 million. We expect 2015 consolidated Adjusted EBITDA to be a loss
between $15 million and $9 million including a loss from Citrus Lane of $4 million to $2
million.
Note: That despite our performance in Q1 our full year Adjusted EBITDA guidance
remains unchanged. This is driven by incremental investments in mobile optimization
and pricing and package testing, and we expect to end 2015 with approximately $50
million in cash.
In closing. We made great progress against our strategic priorities. Our US Matching
and Payments businesses are profitable. We continue to drive sales and marketing
leverage in EBITDA gains, and we believe that we are on track to break even in mid
2016. We're thrilled to have our new CFO Michael Echenberg. He will be joining with us
in a few months when we share with you our Q2 results and I look forward to
introducing him to our Investors and Analysts in the coming weeks. Now I'll be happy to
take your questions.
Operator:
Thank you. We will now be conducting a question-and-answer session. If you would like
to ask a question, please press star, one on your telephone keypad. A confirmation
tone will indicate your line is in the question queue. You may press star, two if you
would like to remove your question from the queue. For participants using speaker
equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for questions.
Thank you, our first question comes from the line of Justin Post with Bank of America
Merrill Lynch. Please proceed with your question.
Justin Post:
Thank you. I have two questions. First, when you think about optimizing the packages
for different uses, people use the service for nannies and babysitters, how do you think
about changing pricing to better optimize the service and to better capture revenues?
Then the second question, looking back to quite a bit of marketing spend last year, it
definitely has helped your customer acquisition, but what have you kind of learned from
the extra marketing spending last year and how will that help you as you look forward?
Thank you.
Sheila Lirio Marcelo:
Sure, good morning, Justin. So the first one with regard to changing pricing, really for
the first time we had sort of a generic product, and the difference—the only dynamic
pricing we really did was sort of geographical income testing and everything was really
based on tenure. So we had a one-month, a three-month and a 12-month package.
What we've actually moved to is pricing on features. So that now we're actually
differentiating specific types of features, number of jobs posted, number of applicants
received per job, and starting to highlight those things and then changing the pricing,
experimenting with tenure, as well. So for the first time we're moving in that direction.
Second layer we're doing is also better segmentation and targeting of our base. Now
we're the largest (inaudible) in the space and we've got significant density of caregivers,
we can start to segment and drive specific needs. So, for example, you touched on
nanny premium. We can actually specifically target full-time nannies and price
differently from those that might need ad hoc baby-sitting, for example. So those are the
kinds of things we're doing to really optimize revenue. We released on April 23rd, our
start of testing, the results are quite promising. So we're very excited across the
different types of pricing package that we're doing throughout our entire platform and
that includes international, as well.
On your second question with regards to overall marketing spend. What we learned was
really start to optimize based on seasonal creative testing with TV, so that we’re making
that much more optimal with regards to our spending, and we've used many of those
dollars actually to start to focus on other digital channels such as Facebook as we grow
that mobile traffic there as well. Then the second place we’ve actually started to put our
dollars even though overall sales and marketing for our organic business has remained
roughly flat, we’ve used some of those dollars specifically for long term investments,
such as investing in organic content development for SEO. Hiring new digital talent to
focus on scale through Facebook and other channels, and also pricing and packaging
consultants to help us with the research. So these are really long-term investments that
we're doing and using the dollars sort of in that way for the growth of the business that
we expect 2016 and beyond.
Justin Post:
Great, thank you. Thanks Sheila.
Operator:
As a reminder if you would like to ask a question, press star, one on your telephone
keypad. If you're using speakerphone, you may need to pick up your handset before
you press the star keys.
Our next question comes from the line of Douglas Anmuth with JP Morgan. Please
proceed with your question.
Diana Kluger:
Hi, this is Diana Kluger in for Doug. Just wanted to see if you could give some color on
any trends in reuse rates or other user behavior that you could call out?
Sheila Lirio Marcelo:
Sure, thanks, Diana, good morning. So, sure, the reuse rates continue to be strong at
60%, and you can see in our length of paid time overall, for our most recent cohort, it's
actually up to 8.6 months in our recent estimates, and you can refer to the Investor
Relations portion of our website with the most updated information we have on month of
pay time, Diana.
Diana Kluger:
Great. Just a quick follow-up on the southern marketing spend. It seems like there's a
pretty decent change, you know, compared to the previous expectations. Is any of that
shifted out later in the year? Or is this kind of the new normal in terms of sales and
marketing spend and you're just reinvesting it in other areas?
Sheila Lirio Marcelo:
It's actually fairly consistent with what we guided last quarter that we expect total sales
and marketing as a percentage of revenue to be under 60% that we're estimating for the
year. We are continuing to spend in a similar pattern that we did last year that a total of
our 85 %of our total sales and marketing spend will be with the first three quarters and
that is pretty much the same pattern.
Diana Kluger:
Okay, thank you.
Operator:
Our next question comes from the line of Kerry Rice with Needham & Company.
Please proceed with your company.
Kerry Rice:
Thanks a lot. Two questions. Citrus Lane was a little bit better than we were expecting, I
think you highlighted that, as well. Was that related to maybe conservatism or I know
you were going through some retooling there. Could you talk a little bit about that? And
then the second question I have is around some pretty significant growth around the US
Matching members. Was that, again, was that a seasonality thing or was that some
progress you have made on mobile optimization and some pricing and packaging
bundles. If you could address that, that would be great. Thank you.
Sheila Lirio Marcelo:
Sure. With regards to Citrus Lane, we believe that we've guided with reasonability for
the rest of the year, so we feel that we're right on track and on target. With regard to the
retooling, we've been around the unique economics of the business and now starting to
really spend time with growing that. So we continue to be thoughtful around it and
remain consistent with our guidance for our expectation for this year for Citrus Lane.
On US Matching members, a lot of progress was really the start of investments that we
made in mid 2013 with respect to organic growth overall and so that also includes just
significant reuse that's also happening because we continue to improve the user
experience. The mobile investments are really just getting underway, and we're looking
forward to updating everyone on the progress there.
Kerry Rice:
Thank you.
Operator:
Our next question comes from the line of Mitch Bartlett with Craig-Hallum. Please
proceed with your question.
Mitch Bartlett:
Sure. Good morning, Sheila. The discussion around your different marketing channels
with TV 30% lower, the investment in content to drive SEO and whatnot, the question is:
How big is TV still and where is it going to evolve to as you make these investments in
content? And also, you mentioned affiliates. I would love you to just kind of expand
what might happen there under affiliates. So the question is broadly just over a period of
time, what is the evolution that you see in your paid marketing channels?
Sheila Lirio Marcelo:
As we shared today, we're really strong results, unpaid has increased from 62% to 67%
of sources now, Mitch, and so we continue to remain focused around unpaid organic
growth as ways to invest in the business.
.
With regards to paid marketing, including television, we saw overall direct spend in US
Matching and Payments decline in total spend by 15%, and TV by 30%, which we
shared this morning. We continue to be big believers in television because it's been
strong at not only building our brand but continuing to be a positive ROI in acquiring our
customers and our members. We're just really thoughtful around optimizing that and
diversifying our channels and starting to spend more with regards to digital and
Facebook specifically on mobile because that's where the members are going. So we
want to make sure that we're reaching them in the most optimal way. But again our
focus is line of sight towards profitability and break-even by mid-2016 we're excited
about. So just making sure we're optimizing our spend and at the same time continuing
to have strong growth in our business.
Mitch Bartlett:
Great.
Sheila Lirio Marcelo:
And with regards to affiliate, that also is underway, we hired recently someone who's
been an expert. She actually came from the coupon world online, and so she's very
familiar with the affiliate network. We're excited, we’ve actually re-negotiated pretty
much all our contracts with affiliates with a much lower commission rate, and so we're
excited to see that grow, as well.
Mitch Bartlett:
Then last quarter you talked about mobile and the development of your mobile sites and
getting mobile ready. Maybe you could just update. Maybe you did that in the call and I
didn't catch it, but update us on mobile?
Sheila Lirio Marcelo:
Yes, mobile is very, very exciting. As I shared on our last call, really investing on
building out the infrastructure specifically on our main flat form, and that includes
availability, bookings and transaction so that we can leverage that for developing a set
of mobile use cases, date night, after school. We'll be rolling out quite a number, nanny
premium, of different use cases specifically targeting our members. And so certainly
please keep a lookout, but we've been releasing quite a bit in investing there, and prior
to peak season, we also expect to invest in an optimized mobile enrollment. As I
mentioned in our last call, we don't really have that platform today but we expect to put
that out before our peak season to have a full end-to-end experience which is our
learning from Q4 that millennials, based on our research, wanted to do and end-to-end
experience on mobile rather than just cross-device usage.
Mitch Bartlett:
Last question would be just the competitive front. What have you seen over the last little
while?
Sheila Lirio Marcelo:
In terms of the competitive environment, we really pay attention to that. More recent
results for us is that we are significantly larger than all the different niche focused
players out there. And at the same time continuing to focus on really targeting the 42
million households because penetration is still low at 3% of cumulative paid members.
About 1.5 million to date. Going after that 42 million households, so it’s still early. Our
main competition is really people using their other networks offline and how to help grow
the market overall.
Mitch Bartlett:
Thank you.
Operator:
Thank you. Ladies and Gentlemen, we have reached the end of the question and
answer session, and with that, the conclusion of today's conference call. You may
disconnect your lines at this time. Thank you for your participation and have a wonderful
day.