Rover Group, Inc. (NASDAQ:ROVR) Q3 2022 Earnings Conference Call November 7, 2022 4:30 PM ET
Company Participants
Walter Reddy – Vice President of Investor Relations and Capital Markets.
Aaron Easterly – Chief Executive Officer, Director, Co-Founder
Brent Turner – President and Chief Operating Officer
Charlie Wickers – Chief Financial Officer
Conference Call Participants
Andrew Boone – JMP Securities
Maria Ripps – Canaccord
Ralph Schackart – William Blair
Cory Carpenter – JPMorgan
Lauren Schenk – Morgan Stanley
Lamont Williams – Stifel
Wyatt Swanson – D.A. Davidson
Eric Sheridan – Goldman Sachs
Operator
Good day. And thank you for standing by. And welcome to the Rover Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Walter Reddy, VP Capital Markets and Investor Relations. Please go ahead.
Walter Reddy
Good afternoon. Thank you for joining us to discuss Rover’s third quarter 2022 earnings results. In this call, we will be discussing the results announced in our press release issued today after the market close, which is available on our Investor Relations website at investors.rover.com. As a reminder, this call is being webcast live from our Investor Relations website and is being recorded and will be available for replay from our Investor Relations website shortly after this call.
With me on the call this afternoon is Aaron Easterly, Chief Executive Officer and Co-Founder; Brent Turner, President and Chief Operating Officer; and Charlie Wickers, Chief Financial Officer at Rover.
Before we begin, I’d like to remind everyone that management will make certain forward-looking statements within the Safe Harbor provisions of the Securities Litigation Reform Act of 1995 on this call identified by the words anticipate, expect, believe, will, may, assume, continue, plan, ongoing and similar expressions. Forward-looking statements are based on the current expectations, estimates, forecasts and projections and beliefs and assumptions of management and relate to our future financial performance, such as our fourth quarter and full year 2022 financial guidance, trends for GAAP and non-GAAP marketing expense as a percentage of revenue, marketing product investments and initiatives, COVID and macroeconomic impacts, partnership and expansion opportunities, market share, other future events and industry and market conditions and forward-looking statements about Rover, its platform and its domestic and international market opportunity. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statements.
We strongly encourage you to review the information that Rover files with the SEC regarding specific risks and uncertainties, in particular, those that are described in the Risk Factors section of Rover’s second quarter 2022 10-Q filed on August 12, 2022, and those that will be disclosed in our third quarter 2022 Form 10-Q. These forward-looking statements speak only as of today. Rover undertakes no obligation to update these statements to reflect subsequent events or circumstances, except as required by law. You should not place undue reliance on our forward-looking statements as they are not guarantees of future performance. Certain information referenced in the presentation is derived from third-party publications and sources. We have not independently verified such information.
Finally, during today’s call, we will discuss unaudited GAAP and non-GAAP financial measures. We provide a reconciliation of the historical non-GAAP measures to the most comparable GAAP measures in our Q3 2022 earnings release and the non-GAAP reconciliation supplement, which is posted under News & Events Presentations section on the Investor Relations portion of our website. As indicated in those reconciliations and discussed in the earnings release, beginning with the third quarter of 2022, our calculations of adjusted EBITDA and non-GAAP general and administrative expense exclude the amount of our recently announced legal settlement. The non-GAAP financial measures provided should not be considered as a substitute for or superior to GAAP financial measures. Unless otherwise noted, we will compare all Q3 2022 metrics to Q3 2021 metrics in this call.
With that, let’s get started. I’ll now turn the call over to Aaron Easterly, Co-Founder and CEO. Aaron?
Aaron Easterly
Thanks, Walter, and thank you everyone for joining us today. I will start by outlining our high level third quarter 2022 earnings results, give a few highlights and then provide some comments on the balance of the year. I will then turn it over to Brent to provide further details on our bookings and investments. Charlie will then conclude the prepared remarks by walking through the financials and our detailed guidance before we take questions.
We had a great quarter at Rover, with both the revenue and adjusted EBITDA up nicely year-over-year and above the high end of our guidance range. Third quarter revenue of $50.9 million was up 45%. Gross booking value of $213.7 million was up 36%. Total bookings were $1.5 million, a growth rate of 18% year-over-year. And adjusted EBITDA was $10.2 million or a 20% margin, up from $6.6 million in the prior year. This outcome is even more impressive when considering the context of the third quarter comparison in 2021 that’s on extremely large bump on the back of vaccine rollouts and the surge in pandemic pet adoptions.
In addition to driving the solid financial performance during the quarter, the team’s strong execution also drove a number of key business accomplishments. First, expected lifetime values continued their record setting trend. Initial data from customers acquired during the quarter shows them on pace to beat all of our prior Q3 cohorts and the customers acquired during the first half of the year continued their respective record pacing.
Second, our international business extended its impressive growth trajectory despite economic uncertainty in Europe, with GBV increasing approximately 100% over Q3 2021 levels. Cat bookings in Europe continued their explosive growth with cat-only GBV over 7x higher than the prior year period. We continue to see opportunities to invest in marketing across our international markets.
Third, we are starting to see our strong brand and market position drive additional category growth. According to a recent survey of pet parent customers, 16% have come directly to Rover to solve their pet care needs before even having tried another solution, including friends, family and neighbors.
Finally, we have signed and implemented a new type of distribution deal with Bright Horizons in the employer sponsored backup care space. This partnership provides employees who have employer-sponsored childcare benefits. The option to use those benefits to book Rover services is an excellent incentive for both new and repeat bookings and marks the first time we have utilized this type of partnership. Initial traction is encouraging.
We have always thought as Rover became the clear category leader and had near universal geographic coverage, we would be increasingly attractive as a commercial partner. We will continue to look at additional opportunities in this area. As we look towards the balance of the year, I’m pleased to report the signs of caution we are observing at our last earnings call, including an elevated cancellation trajectory in June and July have moderated. Our assessment that COVID was the primary driver of these increased levels appears to be borne out. Cancellations, mentions of COVID and platform communication, public data on COVID prevalence and wastewater data have all trended downward together during the second half of Q3. Our preferred measures of category demand have indicated an improved operating environment in the back half of Q3 and into Q4. As such, we feel more confident in the remainder of 2022 and thus are raising our guidance.
Rover’s growth, combined with excellent unit economics, creates an exciting opportunity in the periods ahead. By continuing to judiciously invest in marketing, while managing our fixed costs, we expect a substantial portion of incremental revenue will fall to the bottom-line. With this increasing profitability, we anticipate funding incremental investments in product via our operating cash flows, while concurrently scaling our profitability margins.
And now I’d like to hand over the call to Brent to provide more detail on our bookings, operational performance and marketing spend.
Brent Turner
Thanks, Aaron, and hello to everyone on the call. First, I’d like to provide a bit more color regarding the performance of the business in Q3. As Aaron mentioned, total bookings increased 18% year-over-year to $1.5 million. This was another all-time record quarter for Rover. Q3 worldwide new customer acquisitions were approximately 270,000. This result exceeded last year’s peak of pent up demand when pandemic fears eased in the U.S. and drove a surge of new customers to the platform. With this continued performance, we are on-track to exceed our 2022 new customer targets, underpinning our projections from our processes of going public. Our non-U.S. business was also a significant contributor to new customer acquisitions including very strong performance out of Europe.
Turning now to marketing expenses. In Q3 2022, non-GAAP marketing expense was 16% of revenue, down from 18% in Q3 2021, and 24% in Q2 2022. This decrease was partially driven by a reduction in cancellation rates during the quarter. We also pulled back non-search marketing spending meaningfully at the start of the quarter in response to the pandemic wave. Toward the end of the quarter, as we observed the improvement in cancellation rates, we resumed a number of marketing tests. The results continue to be encouraging. We see solid results on videos, social, and similar channels.
Based on this success, we plan to increase our marketing investment in these longer time to return channels during the fourth quarter. As a result, we expect non-GAAP marketing as a percentage of revenue to trend higher in Q4. However, it is still on track to be towards the lower half of our previously stated 18% to 25% target for the fourth quarter and full year. We will continue to dynamically adjust our marketing spend based on our observations of overall category demand and cancellation rate ebbs and flows due to COVID. We remain confident in our ability to perform within our long-term margin target.
Further, we continue to invest in product features that add platform value for care providers and increase the loyalty of pet parents to the Rover platform. This quarter, we invested significantly in improving the usability of tools with which the care providers manage their calendar and book business through the app. We also added help videos to guide new providers on how to be most effective on the platform.
Finally, we are enhancing our messaging to providers and parents to help them fully understand the increasing value of the Rover offering. We are pleased with the progress and are proud of our results this quarter. The Rover team continues to execute well, driving both new and repeat customer bookings and building scale.
Now, I’ll hand the call over to Charlie to provide further detail on our financial performance.
Charlie Wickers
Thanks, Brent. I’ll begin by providing an overview of our financial results for the third quarter of 2022, followed by guidance on the balance of the year. Revenue in the third quarter was $51 million, up 45%; while third quarter GBV was $214 million up 36%. The increase in revenue was primarily driven by growth of bookings as well as an increase in average booking values. Our third quarter ABV was $142, up 15% year-over-year. The core drivers of this growth were increases in average price per service with overnight services being the significant contributor. This growth in ABVs, along with more predictable repeat behavior, has increased expected lifetime values for all cohorts.
Non-GAAP contribution increased to $41 million in Q3 2022 from $29 million in Q3 2021, driven by growth in revenue while staying roughly flat on a percentage of revenue basis at 81%.
Moving to expenses. Third quarter non-GAAP operations and support expenses were $7 million or 14% of revenue, flat compared to the second quarter of 2022, and up from 12% of revenue in Q3 2021. The increase compared to the prior year is a result of the scaling of personnel in order to provide an appropriate level of staffing, as we continue to drive increasing demand on the platform. We expect non-GAAP operations and support as a percentage of revenue to remain at or below Q3 levels in the medium term. We continue to see leverage in non-GAAP product development expenses, which were $6 million or 11% of revenue compared to $5 million or 14% of revenue in Q3 2021.
Third quarter non-GAAP general and administrative expenses were $10 million or 19% of revenue compared to $8 million or 24% of revenue in Q3 2021. The increase year-over-year in expense is a result of the investment needed to support our transition into the public markets, coupled with expected growth of the business, while the decline on a percentage basis is due to our scaling of revenues from Q3 2021.
Adjusted EBITDA was $10.2 million or a margin of 20%, up from the adjusted EBITDA of $6.6 million or a margin of 19% in Q3 last year. The improvement in adjusted EBITDA resulted from strong revenue paired with moderated marketing expense due to the initial caution we had at the beginning of the quarter. As we normalized our fixed costs post going public, we are increasingly able to demonstrate how our profitability is positively impacted. In recent periods, we have seen incremental revenue flow to adjusted EBITDA at a substantial rate; and given our limited CapEx requirements, contribute significantly to cash flow.
From a liquidity perspective, our total cash, cash equivalents and investments was $266 million, down from $288 million in Q2. This balance was impacted by the timing of payments between us and our payment processor at the end of Q2 and a seasonal impact of working capital due to the 4th of July holiday.
In summary, our business has delivered strong top and bottom-line results during the quarter.
Now turning to guidance. Given the positive context Aaron and Brent discussed and our over-performance in Q3, we are updating our full year guidance for 2022 to increase the revenue and adjusted EBITDA ranges. When we spoke to you last quarter, the picture of the back half of the year, especially cancellation rates, gave us pause and we adjusted guidance accordingly. Since that time, we have seen improvement in key metrics such as cancellation rates, which while still stubbornly elevated from pre-COVID levels, have come down since peaking at 15% in July to 13.8% in September.
Our forward macro assumptions layered into guidance are as follows: Both the low and the high end of our revenue guidance continues to assume the full year impact related to Omicron as discussed in Q1 and the recent macroeconomic headwinds, inclusive of the elevated cancellation rates relative to pre-COVID norms. The high end of our guidance assumes cancellation rates remain steady to September, though seasonally adjusted for the remainder of the year, while the low end assumes higher cancellation rates and lower booking demand.
For the full year 2022, we are updating our prior guidance and now expect revenue of $171 million to $173 million, which at the midpoint would be a 57% increase in revenue over 2021; and adjusted EBITDA of $16 million to $18 million, up from $12.4 million of adjusted EBITDA in 2021. For the fourth quarter, we expect $49 million to $51 million in revenue and $6 million to $8 million in adjusted EBITDA or a 12% to 16% margin driven by our anticipated continued ramp in marketing investment.
In summary, we are excited about the overall performance of the company and remain on-track to drive both top and bottom-line growth as we head into the end of the year. We look forward to connecting with you early next year to wrap 2022 and discuss the year ahead.
With that, we will now turn to questions. Operator, can you open it up to Q&A?
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question comes from Andrew Boone from JMP.
Andrew Boone
Hi, guys. Thanks so much for taking my questions. Two please. One, just on macro. I’d love to hear what you guys are seeing on that end, whether there’s any change in length of stay or any change in providers as you guys are seeing changes in the macro impact? And then secondly, as we think about 2023, and I’m not looking for discrete guidance here, but rather should the macro impact — should the macro environment weaken as we think about next year? Can you talk about how you’re thinking about various cost levers, and what you guys might be able to pull, should things deteriorate faster than we’re all thinking? Thanks so much.
Aaron Easterly
Hey, Andrew. It’s Aaron. Thank you for your question. Generally, we have seen versus pre-pandemic norms, a mixed shift overnight services; and with that, slightly higher units. More recently though that the mix shift has been fairly constant, so we haven’t seen much additional mix shifts, so daytime and overnights growing roughly equivalent levels. We haven’t seen any notable changes beyond seasonal trends more recently. We continue to see the benefits of some of the changes we made to the platform designed to increase the stay duration, like the partial day billing, and we expect to continue to see that benefit over time.
With regards to the broader macroeconomic situation, as a reminder, COVID hit the business pretty hard. We made some really difficult decisions to cut costs when the pandemic first hit. We generally think we’re right-sized as a business going forward, and we may moderate our incremental headcount hiring. We may pull back on marketing if we don’t think the environment is conducive to that spend. But in general, we think the business from a fixed cost perspective is appropriate.
Operator
And our next question comes from Maria Ripps from Canaccord.
Maria Ripps
Great. Thanks so much for taking my questions. First is, I think last quarter you talked about some early evidence of a — sort of a slow-down in new consumer demand. Can you just maybe talk about what are you seeing both from a new customer acquisition standpoint and in terms of the existing client sort of engagement on the platform?
Brent Turner
Hi, Maria. Really good to hear from you. It’s Brent. From the standpoint of new customer, we did enter Q3 in the middle of what we saw with what thought was a part of a pandemic wave that had kicked up in into Q2. Although we saw it begin to abate as the quarter went on and we saw demand strengthened. We’re hoping that that will continue to carry into Q4. We’re pretty happy with how Q3 wound up from a new customer standpoint in the sense that not only were we able to exceed last year’s sort of huge wave of demand as the pandemic last year subsided. And we saw a big tread of — glut of travel demand. But also, we’re really excited to see that we are staying in line with targets that we put together back in 2020 when we were originally planning to go public. So we are excited about that.
In terms of the repeat engagement of the customers that are coming on, it continues to be from a unit standpoint similar to what we have seen in the past and from a revenue standpoint to be the strongest that we have seen. And so we are excited to see that we are continuing to build momentum on those fronts.
Maria Ripps
Great. That’s very helpful. Thanks, Brent. And then secondly, have you seen any uptick in daytime services as more people sort of returning to the office? And then how have your other investments in platform services been progressing, including your sort of integration of the dog training platform that you acquired last quarter?
Aaron Easterly
Good to hear from you. This is Aaron. We saw mix shift with the reopening of the common vaccine rollout, where the overnight services jumped as a percentage of our overall mix. After the first several months or a quarter or so, we kind of out saw relatively proportional growth rates across service lines. The year-over-year mix on the daytime side hasn’t changed much. So that’s kind of consistent with steady growth across. So the high level there is, we are seeing growth in the daytime services, but not faster than the overnight services. And we will continue to monitor that to see how that plays out over time.
With regards to our dog training asset, we had purchased a small early-stage company in that area. We are pleased with the initial results. We think that it makes sense to have that service as part of the mix of Rover Group. And we are excited about the progress that they’re making with regards to building relationships with pet adoption agencies and animal shelters. So it’s early but positive so far.
Maria Ripps
Great. Thanks so much for the color.
Operator
Our next question comes from Ralph Schackart from William Blair. Your line is now open.
Ralph Schackart
Good afternoon. Thanks for taking the question. First question on cancellation rates and I probably think you had mentioned it peaked to about 15% in July. And they were around 13.8% in September. I think you may be used the term sort of stubbornly high versus pre-COVID levels. Can you remind us just sort of a range of what cancellation rates look like pre-COVID? And is there still a COVID impact that are keeping these cancellation rates at this level? I think sometimes you could just sort of observe or read the messaging that’s going on, between supply side and the pet owners. Just kind of curious where you think that cancellation rate will trend sort of — I’m sorry, trend post-COVID waning when combined with the macro? I know it’s a tough question, but I love your thoughts. Thanks.
Charlie Wickers
Hi, Ralph. This is Charlie. Good to hear from you. Pre-pandemic, the cancellation rate norms were in the 8% to 10% range and that fluctuated based on seasonality. Since COVID impacted the world and started to impact Rover, we have just remained at an elevated level and the words that I chose are accurate, it is stubbornly elevated. With regards to longer-term, there is a couple of dynamics that we are looking at. One, COVID, as we know, has impacted cancellation rates negatively and kept them elevated.
As the pandemic itself has lessened from a direct impact, the other thing that we are seeing is just sickness generally has been trending up. I think, RSV is the latest viral dynamic that is starting to have some elevated dynamics. And the reality for our platform is that we think that we are more susceptible to sickness because of the dynamic of our marketplace having both a provider and a pet owner susceptible to illness.
So on a go forward basis, our baseline assumption is that the cancellation rates will remain elevated for some period of time. But we do hope and have not yet incorporated any tick down in those cancellations rates for the first foreseeable future.
Ralph Schackart
Okay. Great. And then maybe just kind of shifting gears on the new commercial agreement with Bright Horizons. Just curious if you could provide maybe a little bit more color on that. Is this a significant opportunity, particularly if you’re able to add more partnerships over time? Seems fairly encouraging, but love anything you could add to it. Thank you.
Aaron Easterly
Hi, Ralph. Thanks for the question. Yes, we are really excited about the possibility of doing more of these types of deals in the future. Although, partners that have the scale of Bright Horizons don’t come along every day. Our high level belief is that Rover is unique as a business. Our market position is unique. Our geographic coverage is unique. A lot of companies in the pet services space are inherently geographic based. It’s very fragmented space. There just aren’t opportunities for national brands or people with wide geographic coverage to find partners in this space. So we thought that as our coverage geographically filled out, and as our category leadership became very clear that these opportunities would come up. And we’re excited about this one. It’s early, but so far solid traction. And we will look into doing more of these types of deals in the future.
Operator
Thank you. And one moment for our next question. And our next question comes from Cory Carpenter from JPMorgan.
Cory Carpenter
First, I wanted to ask about international. I think you said it grew over — or around a 100% year-over-year again. Could you just talk about what’s working so well there and how we should think about the continued opportunity for growth going forward? And then maybe just a specific question for Charlie, anything to call out in terms of impact you saw from Hurricane Ian, or just anything in terms of timing of the holidays in 4Q this year versus last year? Thank you.
Aaron Easterly
Hey there. With regards to the international piece we’ve been really positively surprised by how much growth we’ve seen there, Cory. It’s been pretty inspiring to us. Our baseline assumption though is that a lot of countries outside the U.S. and maybe the UK were a little bit later with their vaccine rollouts. And given the differences in seasonal travel in some of those markets, we may have missed some of that benefit last year. So in Continental Europe, summer travel is really important. And if the vaccine rollouts are a little bit later, then some of what we’re seeing this year in the international markets may be similar to what we saw last year in the U.S. So we are optimistic about the growth rates going forward there, but would expect them to moderate versus the current levels and the macro risk seems to be a little bit more heavily-stacked with Europe as well.
Charlie Wickers
Hi, Cory. It’s Charlie. With regards to your question, Hurricane Ian, softness for about two weeks on the new customer front, but quickly adjusted back to the trend that we are anticipating.
And with regards to holiday timing booking trends in Q4, just as a reminder, our booking window is about three weeks in front of any particular period and we’re just about at that right now for Thanksgiving. So with regards to our — any additional visibility or color, not much more to share other than the guidance that we are putting out today is just based on the trends we see up until this point.
Operator
And our next question comes from Lauren Schenk from Morgan Stanley. Your line is now open.
Lauren Schenk
Great. Thank you. Just two guidance questions, if I can. What’s sort of the underlying travel demand backdrop that you are assuming in the fourth quarter guide? And then maybe how are you thinking about that heading into ’23? And then just any more color on sort of the magnitude of the higher cancellation rate that’s implied at the bottom-end of the guide? And then one bigger picture one, if I can. You mentioned 16% of people came straight to Rover. Are there any similar demographic factors or characteristics among that group? Thanks so much.
Aaron Easterly
Hi, Lauren. I’ll take the first question. With regard to travel demand, as Charlie mentioned, we probably have a little bit less visibility to future travel than other companies in the travel space. So we feel confident about the current quarter, but we will be looking at the broader trends including what other companies are reporting out as well as what we see in travel-intent data and other third parties such as TSA data. So feel good about the fourth quarter. But next year, we are still putting together our plans.
Generally, with regards to our business heading into next year, there’s a couple of things we think about. The first is that the pet industry is generally pretty resilient to recessions. Generally, the category overall still grows, but travel can be impacted by macroeconomic trends. And so we are at the intersection of both. Our base case is that, if there is large macroeconomic winds, we will feel that, but probably less so than the travel industry in general.
When recessions happen or travel slows down, there is kind of two ways that travel revenue slows down. The first is people may travel less. The second is people may budget less money for their trips. So staying at a less expensive resort, hotel, Airbnb, maybe less likely to upgrade to first class, things like that. We would expect that people traveling less would have some impact on our business, but we expect to be impacted a lot less or to some degree maybe not at all by people trading down. The price of people pay for their pet care is such a small portion of the trip that even if people decide to spend less on a hotel, spend less on a resort, it’s probably unlikely to have our average booking value.
So in that sense, we’re not sure exactly what’s in store for next year, but that’s our baseline case is if there are macroeconomic winds, we’ll feel it, but maybe a little bit less than the rest of the travel sector.
Charlie Wickers
Hi, Lauren. This is Charlie. I’ll jump in and talk about cancellation rate and then pass it back to Aaron to talk about the 16%. With regards to guidance and the cancellation rate, on the low end, one of the things that we looked at was the behaviors and cancellation rates in Q3 late and in Q4 of last year. During that period of time, we were at kind of the tailwind of Delta, and then during Q4 there was the impact of Omicron. And so at the low end of our guidance range, we estimated a cancellation rate. That’s kind of a blend of those two dynamics impacting the customer base.
And then with regards to the 16% of new, I’ll pass that back to Aaron.
Aaron Easterly
Yes. With regard to the 16% new, our suspicion is that, that probably skews younger generation. We don’t have data sufficiency yet to say that for certainty. But if you think about the pet owning population, historically our assumption has been that people that use Rover for the first time are either going to be coming from the shadow market, people who use friends, family, neighbors, or take their pets with them on trips or be coming from the commercial market, boarding facilities, doggy daycares, kennels, things like that. So we don’t even have kind of a baseline historically to track this metric because pretty much all of our customers were either coming from commercial or shadow market. As the younger generation has started to adopt pets in general, we decided to start tracking this a little bit more closely. And we were surprised that how high the number was, which is a strong indication of category creation and growth.
If I rewind the clock a little bit and talk about the initial investment thesis related to launching Rover’s business, when investors would ask us, what does success look like in terms of TAM and category creation? And our response at the time was, okay, a couple decades from now, success would look like people actually just defaulting to Rover. And this is what you do when you have a pet. This is how you go about providing for your pet when you’re away from home. And so that was our thought. So it’s really exciting to start to see that show up in the data and suggest that the TAM as we’ve always thought is a lot bigger than the existing commercial market. We hope to share more in the future about specific demographic breakouts of that 16% though.
Operator
And our next question comes from Lamont Williams from Stifel.
Lamont Williams
I just wanted to touch base a little bit on the average price per booking. How much is of that is coming from price increases as we start to lap pricing pieces from last year? And do you think there’s — you can get to a level where there could be some consumer pushback in terms of the level of prices that suppliers are asking for?
Charlie Wickers
Hi, Lamont. This is Charlie. With regards to the ABVs, you are right to point out that they are up again year-over-year, up about 15%. One of the trends that we have been seeing is that they have been slowing down on their year-over-year growth. The peak growth rate was really about Q4 of last year, but they have been trending down.
With regards to the splits on the price per units and the number of units within the ABV dynamic, about two-thirds of the increase was really driven by price per unit, and about one-third is driven by the number of units there.
With regards to whether or not there is going to be consumer pushback on the pricing dynamics, we touched on this a little bit last quarter. We weren’t really seeing any impacts in terms of conversion rates or the propensity for somebody to book with regards to price being a hurdle. I haven’t seen much of an uptick on that. And longer term from an inflationary standpoint, we would expect the price per unit growth to continue to slow down, like we have been seeing and probably get back to kind of a normalized year-over-year growth that we were experiencing pre-pandemic. But don’t really have visibility or the perspective that they would go backwards on a year-over-year basis.
Aaron, did you have something else you would like to add there?
Aaron Easterly
Yes. Thanks for the question, Lamont. We have — if you look at our demographic mix, we are surprisingly broad. But one of the areas we are under-indexed a little bit is in the lowest income segment. I think our baseline assumption is that if there is pushback, it’s probably going to be more for people with less disposable income, which we are somewhat underrepresented in at least at the very low end of the income bracket. So our baseline case has that slowing down, but we think that inflation [Technical difficulty] would need to come down decent amount before we saw — we would see it go backwards in an absolute sense, but we’ll keep you apprised.
Unidentified Analyst
Okay, great. Thank you.
Operator
Thank you. And our next question comes from Tom White from D. A. Davidson and Company. Your line is now open.
Wyatt Swanson
This is Wyatt Swanson on for Tom. Could you guys talk about your upper funnel traffic trends and what they have looked like in recent weeks? And then maybe give us some early sense about how you are thinking about your marketing tactics heading into next year? And to what extent you think your marketing efficiency or conversion rates could be impacted by the macro?
Brent Turner
Hi, thanks for the question. It’s Brent. Without specific metrics that we talk about publicly, I would say, our upper funnel is strengthening. We are doing things from a marketing standpoint right now to strengthen it. In that we are easing back down our funnel marketing, particularly YouTube, streaming and linear TV and in the — and in social. And in the case of the more digital channels, we are doing those in Canada and Europe as well.
In terms of how they are going to be impacted by the macro, I mean we feel pretty good about the rest of the year in terms of how we’re trending. And we’re putting together our own opinions about how next year will probably play out and we’ll keep you apprised.
Aaron Easterly
The one thing I’ll add to that is, one of the benefits of having a strong balance sheet is that we have the ability to kind of look at the value of a customer over a longer period of time. And so we want to sustain our marketing efforts and building the category if we think the returns over time are good and not be too focused on just the near term.
Operator
Thank you. And one moment for our last question. And our last question comes from Eric Sheridan from Goldman Sachs.
Eric Sheridan
Thanks so much for taking the question. Maybe I’ll try to end on a big picture one. As you guys look forward to 2023, I know it’s a little early to talk about it from a forecast standpoint, but can you refresh folks in terms of what your highest priorities items are in terms of investing in the business, building product for growth, and how we should be thinking about the yield or the output of those investments over the next couple of years? Thanks so much.
Brent Turner
Hi, Eric, it’s really good to hear from you. It’s Brent. And I love this question. Our priorities is we’re moving into next year just probably in this order. We’re trying to make investments that add platform value for our care providers. We are trying to make investments that make it easier for new customers to find and book with the care provider on our platform. We are making investments to try to make sensible extensions to our existing marketplace with new business lines that we are either considering or building or are currently integrating. And we are especially interested in enrolling features to our international business to try to accelerate growth and build on the momentum that we’ve got there. I think that’s — from an investment standpoint, that’s what’s in our head, at least from a product standpoint.
Operator
And thank you. And I am showing no further questions. I would now like to turn the call back over to Aaron Easterly for closing remarks.
Aaron Easterly
Well, thank you, everyone, for taking the time to hear about Rover’s third quarter. It was exciting quarter and we’re even more excited about the time ahead. See you on 2023 on our next call.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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