| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
Revenue | 100 | % | | 100 | % |
Costs and expenses(1): | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | 41 | | | 25 | |
Operations and support | 25 | | | 21 | |
Marketing | 33 | | | 53 | |
Product development | 46 | | | 23 | |
General and administrative | 45 | | | 26 | |
Depreciation and amortization | 18 | | | 9 | |
Total costs and expenses | 208 | | | 157 | |
Loss from operations | (108) | | | (57) | |
Other income (expense), net: | | | |
Interest income | 1 | | | 3 | |
Interest expense | (6) | | | — | |
Loss from impairment of DogHero investment | (4) | | | — | |
Other income (expense), net | — | | | (1) | |
Total other income (expense), net | (9) | | | 2 | |
Loss before income taxes | (117) | | | (55) | |
Benefit from income taxes | — | | | — | |
Net loss | (117) | % | | (55) | % |
________________
(1)Costs and expenses include stock-based compensation expense.
Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 | | Amount | | % |
| (in thousands) |
Revenue | $ | 48,800 | | | $ | 95,052 | | | $ | (46,252) | | | (49) | % |
The decrease in revenue for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a 43% decrease in the number of bookings on our platform and a 7% decrease in the ABV due to the COVID-19 pandemic. Demand for overnight and daytime pet care is primarily linked to pet parents traveling
or working outside of the home, which have declined in 2020 as a result of widespread stay at home orders by local governments. As result of this COVID-19 impact, ABV decreased due to an increase in mix towards daytime services, which have lower GBV than overnight services, as well as a reduction in the average number of nights per stay for overnight services.
Costs and Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 | | Amount | | % |
| (in thousands) |
Costs and expenses: | | | | | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | $ | 19,823 | | | $ | 23,522 | | | $ | (3,699) | | | (16) | % |
Operations and support | 12,371 | | | 19,882 | | | (7,511) | | | (38) | |
Marketing | 16,332 | | | 49,921 | | | (33,589) | | | (67) | |
Product development | 22,567 | | | 22,066 | | | 501 | | | 2 | |
General administrative | 21,813 | | | 24,947 | | | (3,134) | | | (13) | |
Depreciation and amortization | 8,899 | | | 8,390 | | | 509 | | | 6 | |
Total costs and expenses | $ | 101,805 | | | $ | 148,728 | | | $ | (46,923) | | | (32) | % |
Cost of Revenue (Exclusive of Depreciation and Amortization Shown Separately). The decrease in cost of revenue (exclusive of depreciation and amortization shown separately) for the year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of a 49% decrease in revenue due to the COVID-19 pandemic. The decrease includes a $5.0 million decrease in merchant fees, a $1.4 million decrease in pet care provider background check costs, a $1.3 million decrease in customer claim costs related to the Rover Guarantee, and a $0.9 million decrease in technology platform costs. The decreases were partially offset by a $4.6 million increase in amortization expense for internal-use software, including a $2.6 million acceleration of internal-use software related to the discontinuation of our on-demand service and a $0.4 million increase in Rover Store costs.
Operations and Support. The decrease in operations and support expense for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a decrease in personnel-related costs for the operations and support team as well as a decrease in third-party costs related to outsourced support providers in response to changes in demand for our platform as illustrated by the 43% decrease in the number of bookings on our platform due to the COVID-19 pandemic and the reduced need for pet care provider onboarding and general platform user support activities. The decrease consisted of a $4.7 million decrease in personnel costs as a result of the reduction in force, a $2.2 million decrease of third-party customer service provider costs, a $0.7 million decrease in allocation of overhead costs and $0.4 million of other decreases primarily as a result of the discontinuation of our on-demand services. These reductions were partially offset by $0.5 million of severance costs related to the reduction in our workforce in response to the impact of the COVID-19 pandemic.
Marketing. The decrease in marketing expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of a $30.4 million reduction in discretionary customer acquisition expenses, a $1.4 million reduction of professional services costs, and a $2.1 million reduction in personnel costs as a result of the reduction in force. These reductions were made to reduce cash outlays due to a 43% reduction in the number of bookings on our platform as a result of the COVID-19 pandemic. The decreases were offset by $0.3 million of severance costs related to the reduction in our workforce.
Product Development. Product development expenses for the year ended December 31, 2020 were up slightly from the year ended December 31, 2019 and was the result of a $1.5 million increase in allocated overhead costs and $1.5 million of severance costs associated with the reduction in our workforce. These costs were offset by a $2.1 million decrease in personnel expenses as a result of the reduction in our workforce, a $0.4 million reduction in third party contractor costs, and a $0.2 million reduction in expenses associated with product development.
General and Administrative. The decrease in general and administrative expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of $2.0 million of personnel cost reductions as a result of the reduction in force, a $1.4 million decrease in professional services, a $0.2 million reduction in facilities and other overhead costs, a $0.2 million decrease in state and local taxes, and a $0.1 million decrease in bank fees. These decreases were partially offset by $0.6 million of severance costs due to the reduction in our workforce and a $0.3 million increase in insurance costs due to rate increases.
Depreciation and Amortization. The increase in depreciation and amortization expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was due to a $3.0 million increase in the depreciation expense for property, plant, and equipment as a result of office expansion to support our previously anticipated headcount growth. This increase was partially offset by a $2.5 million decrease of intangible asset amortization expense as a result of certain intangible assets related to the DogVacay acquisition reaching the end of their useful lives.
Other Income (Expense), Net
Interest Income. The $2.3 million decrease in interest income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily related to a decline in interest rates year over year as well as a decrease in short-term investments.
Interest Expense. The $2.9 million increase in interest expense for year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of the addition of a $11.4 million principal amount of revolving borrowings and $15.0 million of term borrowings under the credit facility, and $30.0 million under the subordinated credit facility in March 2020. In addition, in April 2020, we were approved for and received a $8.1 million PPP Loan.
Loss on Impairment of DogHero Investment. The increase for the year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of a $2.1 million write-down of our investment in DogHero, a pet care marketplace based in Brazil.
Other Income (Expense), Net. The $1.3 million decrease in other income (expense), net for the year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of $0.4 million of foreign currency exchange losses recorded in 2019 primarily related to the transfer of intangible assets from our European entities to our U.S. entity, $0.5 million of one-time expenses recognized in 2019 related to early exits from excess office spaces, and a $0.2 million increase in 2020 in other income primarily related to a settlement received from a class action lawsuit.
Benefit From Income Taxes. Benefit from income taxes decreased by $0.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 driven by the conversion of the European subsidiaries to limited risk service providers.
Non-GAAP Measures
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 non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP Operations and Support Expense, Non-GAAP Marketing Expense, Non-GAAP Product Development Expense and Non-GAAP General and Administrative Expense (collectively, the “Non-GAAP Financial Measures”), to evaluate the health of our business, measure our operating performance, identify trends, prepare financial forecasts and make strategic decisions. We provide a reconciliation below of the Non-GAAP Financial Measures to their most directly comparable GAAP financial measures.
We believe that these Non-GAAP Financial Measures, when taken together with their corresponding comparable U.S. GAAP financial measure, provide meaningful supplemental information regarding our operating performance by excluding certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that may not be indicative of our recurring core business, results of operations, or outlook. By presenting
these Non-GAAP Financial Measures, we provide a basis for comparison of our business operations between periods by excluding items that we do not believe are indicative of our core operating performance, and we believe that investors’ understanding of our performance is enhanced by our presenting these Non-GAAP Financial Measures, as they provide a reasonable basis for comparing our ongoing results of operations and those of other companies.
We use the Non-GAAP Financial Measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We consider the Non-GAAP Financial Measures to be important measures because they help illustrate underlying trends in our business and our historical operating performance on a more consistent basis.
We believe that both management and investors benefit from referring to these Non-GAAP Financial Measures in assessing our performance and when planning, forecasting, and analyzing future periods. These Non-GAAP Financial Measures also facilitate management’s internal comparisons to our historical performance. We believe these Non-GAAP Financial Measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and in assessing the health of our business and our operating performance and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business. Accordingly, we believe that these Non-GAAP Financial Measures provide 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.
The 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. Examples of these limitations include:
•these measures do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•these measures do not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA excludes certain restructuring and merger and acquisition-related charges, part of which may be settled in cash;
•these measures exclude stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;
•these measures exclude significant expenses and income that are required by GAAP to be recorded in our financial statements;
•these measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these Non-GAAP Financial Measures; and
•our calculation of these Non-GAAP Financial Measures 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 the Non-GAAP Financial Measures may not be directly comparable to similarly titled measures of other companies.
In order to compensate for these limitations, management presents the 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 the SEC. For example, due to Warrant and Earnout Shares 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 periods prior to the quarter ended September 30, 2021 and will have less impact on the calculations for future periods due to their reclassification to equity as of December 31, 2021 for the Earnout Shares and in January 2022 for the Warrants.
Moreover, the year ended December 31, 2020 calculations exclude an impairment loss not reflected in other years and the year ended December 31, 2021 calculations exclude expenses related to a secondary offering not reflected in other years.
The Non-GAAP Financial Measures are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. These Non-GAAP Financial Measures should not be considered as substitutes for GAAP financial measures such as net income (loss), operating expenses or any other performance measures derived in accordance with GAAP. Also, in the future we may incur expenses or charges such as those being adjusted in the calculation of these Non-GAAP Financial Measures. Our presentation of these Non-GAAP Financial Measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items.
Adjusted EBITDA
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, certain merger and acquisition-related costs and transaction expenses. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.
The following table presents a reconciliation of Adjusted EBITDA from net loss, along with Adjusted EBITDA margin, for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (in thousands) |
Revenue | $ | 109,837 | | | $ | 48,800 | | | $ | 95,052 | |
Adjusted EBITDA reconciliation: | | | | | |
Net loss | $ | (64,049) | | | $ | (57,485) | | | $ | (51,714) | |
Add (deduct): | | | | | |
Depreciation and amortization (1) | 14,683 | | | 18,713 | | | 13,596 | |
Stock-based compensation expense (2) | 11,061 | | | 5,541 | | | 4,520 | |
Interest expense | 2,952 | | | 3,154 | | | 204 | |
Interest income | (49) | | | (488) | | | (2,807) | |
Loss from impairment of Dog Hero investment | — | | | 2,080 | | | — | |
Change in fair value, net (3) | 43,926 | | | — | | | — | |
Other (income) expense, net | 284 | | | (171) | | | 1,109 | |
Income tax (benefit) expense | (226) | | | (94) | | | (468) | |
Restructuring expense (4) | — | | | 3,763 | | | — | |
Merger and acquisition-related costs (5) | 2,556 | | | 31 | | | 341 | |
Transaction-related expenses (6) | 1,263 | | | — | | | — | |
Adjusted EBITDA | $ | 12,401 | | | $ | (24,956) | | | $ | (35,219) | |
Adjusted EBITDA margin (7) | 11 | % | | (51) | % | | (37) | % |
________________
(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)Change in fair value, net includes the mark-to-market adjustments related to the Earnout Shares and Warrant liabilities.
(4)Restructuring expense include costs for severance-related and legal costs incurred during the implementation of our restructuring plan.
(5)Merger and acquisition-related costs include accounting, legal, consulting and travel related expenses incurred in connection with the merger and business combinations.
(6)Transaction-related expenses include costs related to our secondary offering in the fourth quarter of 2021.
(7)Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.
In the year ended December 31, 2021, Adjusted EBITDA was $12.4 million, an improvement of $37.4 million compared to ($25.0) million in the year ended December 31, 2020. This improvement was primarily due to a 75% increase in total bookings and an increase in ABV, as our marketplace scaled and pet parents traveled more. This improvement of marketplace performance led to a $61.0 million improvement in revenue, which became the main driver of our improvement in Adjusted EBITDA. Over the long term, we expect Adjusted EBITDA to be positive and increase over time as a result of continued growth in bookings on our platform and operational efficiency gains. However, in the near term, there remains some uncertainty due to the COVID-19 pandemic. For additional information regarding the impact of the COVID-19 pandemic on our business, see “—Impact of COVID-19.” In 2020, Adjusted EBITDA was ($25.0) million, an improvement of $10.2 million compared to ($35.2) million in 2019, primarily due to the impact of COVID-19 pandemic on transactions on our marketplace and the subsequent cost-cutting actions to reduce our cash burn by turning off substantially all paid acquisition marketing activities and implementing a reduction in force of approximately 40% of our employees and moving approximately 10% of our employees to standby or furlough.
The following table presents a reconciliation of Adjusted EBITDA from net loss, along with Adjusted EBITDA margin, for each of the last eight fiscal quarters ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Mar. 31, 2020 | | Jun. 30, 2020 | | Sep. 30, 2020 | | Dec. 31, 2020 | | Mar. 31, 2021 | | Jun. 30, 2021 | | Sep. 30. 2021 | | Dec. 31. 2021 |
| | | | | | | | | | | | | | | |
Revenue | $ | 16,991 | | | $ | 5,381 | | | $ | 13,260 | | | $ | 13,168 | | | $ | 12,196 | | | $ | 24,482 | | | $ | 35,153 | | | $ | 38,006 | |
Adjusted EBITDA reconciliation: | | | | | | | | | | | | | | | |
Net (loss) income | $ | (20,545) | | | $ | (18,079) | | | $ | (10,359) | | | $ | (8,502) | | | $ | (10,591) | | | $ | (2,806) | | | $ | (84,537) | | | $ | 33,885 | |
Add (deduct): | | | | | | | | | | | | | | | |
Depreciation and amortization (1) | 4,644 | | | 6,599 | | | 3,857 | | | 3,613 | | | 3,569 | | | 3,608 | | | 3,638 | | | 3,868 | |
Stock-based compensation expense (2) | 1,585 | | | 894 | | | 1,789 | | | 1,273 | | | 1,001 | | | 1,147 | | | 994 | | | 7,919 | |
Interest expense | 249 | | | 1,009 | | | 1,186 | | | 710 | | | 697 | | | 703 | | | 1,534 | | | 18 | |
Interest income | (332) | | | (129) | | | (22) | | | (5) | | | (4) | | | (4) | | | (19) | | | (22) | |
Loss from impairment of DogHero investment | — | | | — | | | 2,000 | | | 80 | | | — | | | — | | | — | | | — | |
Change in fair value, net (3) | — | | | — | | | — | | | — | | | — | | | — | | | 83,580 | | | (39,654) | |
Other (income) expense, net | 44 | | | 144 | | | (77) | | | (281) | | | 51 | | | 26 | | | 116 | | | 91 | |
Income tax (benefit) expense | (23) | | | (29) | | | (70) | | | 28 | | | 14 | | | (331) | | | 36 | | | 55 | |
Restructuring expense (4) | 2,080 | | | 1,159 | | | 511 | | | 13 | | | — | | | — | | | — | | | — | |
Merger and acquisition-related costs (5) | 28 | | | 3 | | | — | | | — | | | 905 | | | 151 | | | 1,280 | | | 220 | |
Transaction expenses (6) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,263 | |
Adjusted EBITDA | $ | (12,270) | | | $ | (8,428) | | | $ | (1,187) | | | $ | (3,071) | | | $ | (4,358) | | | $ | 2,494 | | | $ | 6,622 | | | $ | 7,643 | |
Adjusted EBITDA margin (7) | (72) | % | | (157) | % | | (9) | % | | (23) | % | | (36) | % | | 10 | % | | 19 | % | | 20 | % |
________________
(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)Change in fair value, net includes the mark-to-market adjustments related to the Earnout Shares and Warrant liabilities.
(4)Restructuring expense include costs for severance-related and legal costs incurred during the implementation of our restructuring plan.
(5)Merger and acquisition-related costs include accounting, legal, consulting and travel related expenses incurred in connection with the merger and business combinations.
(6)Transaction-related expenses include costs related to our secondary offering in the fourth quarter of 2021.
(7)Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.
In the three months ended December 31, 2021, Adjusted EBITDA was $7.6 million, an improvement of $10.7 million compared to ($3.1) million in the three months ended December 31, 2020. This improvement was primarily due to a 117% increase in total bookings and an increase in ABV, as our marketplace scaled and pet parents traveled more. This improvement of marketplace performance led to a $24.8 million improvement in revenue, which became the main driver of our improvement in Adjusted EBITDA. Over the long term, we expect Adjusted EBITDA to be positive and increase over time as a result of continued growth in bookings on our platform and operational efficiency gains. However, in the near term, there remains some uncertainty due to the COVID-19 pandemic. For additional information regarding the impact of the COVID-19 pandemic on our business, see “—Impact of COVID-19.” Non-GAAP Operating Expenses
We calculate Non-GAAP Operations and Support Expense, Non-GAAP Marketing Expense, Non-GAAP Product Development Expense and Non-GAAP General and Administrative Expense by excluding the non-cash expenses arising from the grant of stock-based awards. These non-GAAP operating expenses are also presented as a percentage of revenue, which is calculated by dividing the specific non-GAAP operating expense for a period by revenue for the same period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Amount | | % | | Amount | | % | | Amount | | % |
| | | | | | | | | | | |
Revenue | $ | 109,837 | | | 100 | % | | $ | 48,800 | | | 100 | % | | $ | 95,052 | | | 100 | % |
| | | | | | | | | | | |
Operations and support expense | $ | 14,928 | | | 14 | % | | $ | 12,371 | | | 25 | % | | $ | 19,882 | | | 21 | % |
Less: Stock-based compensation expense | (545) | | (1) | | | (299) | | (1) | | | (277) | | — | |
Non-GAAP Operations and support expense | $ | 14,383 | | | 13 | % | | $ | 12,072 | | | 24 | % | | $ | 19,605 | | | 21 | % |
| | | | | | | | | | | |
Marketing expense | $ | 19,937 | | | 18 | % | | $ | 16,332 | | | 34 | % | | $ | 49,921 | | | 53 | % |
Less: Stock-based compensation expense | (725) | | (1) | | | (397) | | (1) | | | (301) | | (1) | |
Non-GAAP Marketing expense | $ | 19,212 | | | 17 | % | | $ | 15,935 | | | 33 | % | | $ | 49,620 | | | 52 | % |
| | | | | | | | | | | |
Product development expense | $ | 22,712 | | | 21 | % | | $ | 22,567 | | | 46 | % | | $ | 22,066 | | | 23 | % |
Less: Stock-based compensation expense | (3,821) | | (4) | | | (1,873) | | (4) | | | (1,486) | | (2) | |
Non-GAAP Product development expense | $ | 18,891 | | | 17 | % | | $ | 20,694 | | | 42 | % | | $ | 20,580 | | | 21 | % |
| | | | | | | | | | | |
General and administrative expense | $ | 35,559 | | | 32 | % | | $ | 21,813 | | | 45 | % | | $ | 24,947 | | | 26 | % |
Less: Stock-based compensation expense | (5,970) | | (5) | | | (2,972) | | (6) | | | (2,003) | | (2) | |
Non-GAAP General and administrative expense | $ | 29,589 | | | 27 | % | | $ | 18,841 | | | 39 | % | | $ | 22,944 | | | 24 | % |
Liquidity and Capital Resources
Sources of Liquidity
Our principal sources of liquidity are our cash and cash equivalents. As of December 31, 2021, we had $278.9 million of cash and cash equivalents and $4.3 million in long-term investments. This represents an increase in cash and cash equivalents of $198.1 million from December 31, 2020 due to the $235.6 million of net proceeds from the Merger after the repayment of outstanding debt. See Note 3—Reverse Recapitalization. Additionally, these amounts do not include funds of $26.0 million held by our payment processor that we record separately on our balance sheet in accounts receivable. Cash and cash equivalents balances consist of operating cash on deposit with financial institutions and money market fund investments. To increase the returns on our cash and cash equivalents, we have opened investment accounts with financial institutions to invest in investments such as fixed income securities, which include U.S. government agency securities, municipal securities, treasury bills and certificates of deposit, and investment grade corporate securities. As a result of the terminations of our credit facilities and Paycheck Protection Program Promissory Note and Agreement during the year ended December 31, 2021 as discussed in Note 10—Debt, we no longer have any outstanding debt or existing credit agreements. Since inception, we have incurred operating losses and, until 2021, 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 year ended December 31, 2021, we incurred operating losses of $17.2 million, but generated positive operating cash flows of $14.3 million. As we continue to invest in growing our business and service
offerings, we expect that operating losses could continue for the foreseeable future, and negative operating cash flows could return. As a result, we may require additional capital resources.
Based upon our current operating plans, we believe that our cash and cash equivalents, combined with any cash flows from operations, will be sufficient to fund our operations through December 31, 2022 and our foreseeable cash needs for the longer term. However, these forecasts involve substantial 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 will continually evaluate opportunities to enhance our long-term liquidity for any long-term funding not provided by operating cash flows and cash and cash equivalents, which could include selling additional equity or debt securities, or obtaining credit facilities, for strategic reasons or to further strengthen our financial position. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, and technologies, which might affect our liquidity requirements or cause us to secure financing, or issue additional equity or debt securities. The sale of additional equity or convertible debt securities would be dilutive to our stockholders. 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.
Capital Resources
We continue to invest in the development and expansion of our operations. Ongoing investments include, but are not limited to, technology and platform enhancements, research of new service offerings and adjacent opportunities, as well as investments in marketing and advertising and personnel to support our growth and newly public company status.
Our material cash requirements from known contractual and other obligations as of December 31, 2021 primarily relate to lease obligations. See Note 11—Commitments and Contingencies for a discussion of our lease obligations and other commitments. We anticipate long-term cash uses may also include strategic acquisitions or investments. Cash Flows
The following table summarizes our cash flows for the periods indicated.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (in thousands) |
Net cash provided by (used in): | | | | | |
Operating activities | $ | 14,334 | | | $ | (56,955) | | | $ | (24,721) | |
Investing activities | (11,490) | | | 31,419 | | | 14,717 | |
Financing activities | 195,247 | | | 38,631 | | | 773 | |
Effect of foreign exchange on cash and cash equivalents | (35) | | | 99 | | | (70) | |
Net increase (decrease) in cash and cash equivalents | $ | 198,056 | | | $ | 13,194 | | | $ | (9,301) | |
Operating Activities
Net cash provided by operating activities was $14.3 million for the year ended December 31, 2021. The most significant component of our cash provided by operations was a net loss of $64.0 million, which included non-cash expense related to the change in fair value of earnout and warrant liabilities of $43.9 million, depreciation and amortization totaling $14.7 million, stock-based compensation of $11.1 million and $2.1 million of non-cash operating lease costs. In addition, a cash inflow of $6.1 million was attributable to changes in operating assets and
liabilities as a result of an increase of $27.4 million in deferred revenue, pet parent deposits, and pet service provider liabilities due to increased payments received from customers in advance of revenue recognition, offset by a $23.0 million increase in accounts receivable due to an increase in funds held with a new payment processor.
Net cash used in operating activities was $57.0 million for the year ended December 31, 2020. The most significant component of our cash used was a net loss of $57.5 million. This included non-cash expense related to stock-based compensation of $5.5 million, an impairment of $2.1 million related to our investment in Dog Hero and depreciation and amortization totaling to $18.7 million. In addition, a cash outflow totaling $26.5 million was attributable to changes in operating assets and liabilities, primarily as a result of a decrease of $20.6 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 $4.4 million in accounts payable as a result of timing of payments to vendors.
Net cash used in operating activities was $24.7 million for the year ended December 31, 2019. The most significant component of our cash used was a net loss of $51.7 million. This included non-cash expense related to stock-based compensation of $4.1 million and depreciation and amortization totaling to $13.6 million. This was partially offset by a cash inflow totaling $9.6 million attributable to changes in operating assets and liabilities, primarily as a result of an increase of $5.4 million of deferred rent included in other noncurrent liabilities, and a $6.0 million increase in deferred revenue, pet parent deposits and pet service provider liabilities due to increased payments received from customers in advance of revenue recognition.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2021 was $11.5 million, which was primarily driven by our investment in internal-use software of $6.3 million associated with new product development and technology enhancements, purchase of available-for-sale securities of $4.3 million, and the purchase of property and equipment of $0.9 million for computers and peripheral equipment to support the 51% increase in total headcount.
Net cash provided by investing activities for the year ended December 31, 2020 was $31.4 million, which was primarily due to net short-term investment cash inflows of $36.2 million, offset by investment in internal-use software of $6.8 million and purchases of property and equipment of $0.9 million.
Net cash provided by investing activities for the year ended December 31, 2019 was $14.7 million, which was primarily due to net short-term investment cash inflows of $48.0 million, offset by purchases of property and equipment of $16.4 million, investment in internal-use software of $11.9 million, and an equity investment in DogHero Ltd. of $5.0 million.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2021 was $195.2 million, which primarily consisted of $235.5 million of net proceeds related to the Merger, partially offset by $38.1 million of repayment of borrowings on our credit facilities.
Net cash provided by financing activities for the year ended December 31, 2020 was $38.6 million, which was primarily due to net proceeds from borrowings under our credit facilities.
Net cash provided by financing activities for the year ended December 31, 2019 was $0.8 million, which consisted of proceeds from exercise of common stock options.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market and other risks, including the effects of change in interest rates, inflation and foreign currency translation and transaction risks as well as risks to the availability of funding sources, hazard events and specific asset risks.
Interest Rate Risk
Our investment portfolio may consist of short-term and long-term fixed income securities, including government and investment-grade debt securities and money market funds. These securities are classified as available-for-sale and, consequently, are recorded in the consolidated balance sheets at fair value with unrealized gains or losses, net of tax reported as a separate component of stockholders’ equity (deficit) within accumulated other comprehensive income (loss). Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investments for trading or speculative purposes.
Based on our investment portfolio balance as of December 31, 2021 and 2020, a hypothetical 100 basis point increase in interest rates would not have materially affected our consolidated financial statements. We currently do not hedge these interest rate exposures.
Foreign Currency Risk
Our functional currency is the U.S. dollar, while certain of our current and future subsidiaries will be expected to have other functional currencies, including the British Pound, the Euro and the Canadian dollar. To date, we have not had material exposure to foreign currency fluctuations and have not hedged such exposure, although we may do so in the future.
Inflation Risk
We do not believe that inflation has had a material negative effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
While our significant accounting policies are described in more detail in Note 2—Summary of Significant Accounting Policies to our consolidated financial statements, we believe that the accounting policies below are most critical to understanding our financial condition and historical and future results of operations. Revenue Recognition
We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which we adopted as of January 1, 2019 on a modified retrospective basis. We generate substantially all of our revenue from facilitating the connection between pet care providers and pet parents. We consider both pet parents and pet care providers to be our customers. We charge a fixed percentage service fee for each arrangement of pet-related services between the pet parent and the pet service provider on our platform, or a booking. The fixed percentage service fees are established at the time a pet parent or pet provider joined the platform and do not vary based on the volume of transactions. A booking defines the explicit fee from which we earn our fixed service fee. Our single performance obligation is identified as the facilitation of the connection between pet care provider and pet parent through our platform, which occurs upon the completion of a booking. Revenue is recognized at a point in time when the
performance obligation is satisfied upon completion of a booking and the related underlying pet-related services have begun.
We evaluate the presentation of revenue on a gross or net basis based on whether or not we are the principal in the transaction (gross) or whether we arrange for other parties to provide the service to the pet parent and are an agent (net) in the transaction. We determined that we do not control the right to use the pet-related services provided by the pet service provider to the pet parent. Accordingly, we concluded that we are acting in an agent capacity and revenue is presented net reflecting the service fees received from our customers to facilitate a booking.
We offer discounts to pet parents to encourage use of the Company’s platform. Discounts are primarily in the form of coupon codes for prospective pet parents and are accounted for as reductions to revenue.
Stock-Based Compensation
We have granted stock-based awards consisting primarily of stock options and restricted stock units (“RSUs”) to employees, directors, and consultants of the Company. We estimate the fair value of stock options granted to employees, non-employees and directors using the Black-Scholes option pricing model. The fair value of stock options that is expected to vest is recognized as compensation expense on a straight-line basis over the requisite service period.
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:
•Fair Value of Common Stock. See “—Common Stock Valuations” below.
•Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.
•Expected Volatility. Because prior to the closing of the Merger we had been privately held and did not have any trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded peer companies over a period equal to the expected term of the stock option grants. As our Class A Common Stock only recently became publicly traded, the expected volatility for our stock options will be determined by using an average of historical volatilities of selected industry peers deemed to be comparable to our business corresponding to the expected term of the awards in the future until we have a sufficient period of our own volatility
•Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term), as we do not have sufficient historical data to use any other method to estimate expected term.
•Expected Dividend Yield. We have never paid dividends on our common stock and have no plans to pay dividends on our Class A Common Stock. Therefore, we used an expected dividend yield of zero.
See Note 15—Stock-Based Compensation to our consolidated financial statements included elsewhere in this prospectus for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, stock-based compensation could be materially different. Common Stock Valuations
Historically, for all periods prior to the Merger, since there had been no public market for Legacy Rover’s common stock, the fair value of the shares of common stock underlying Legacy Rover’s share-based awards was estimated on each grant date by the Legacy Rover Board. To determine the fair value of Legacy Rover’s common stock underlying option grants, the Legacy Rover Board considered, among other things, input from management,
valuations of Legacy Rover common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, the Legacy Rover Board’s assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors include, but are not limited to:
•our results of operations and financial position, including the present value of expected future cash flows and the value of tangible and intangible assets;
•risks and opportunities relevant to our business;
•the status of platform development activities;
•our business conditions and projections;
•the market value of companies engaged in a substantially similar business;
•the lack of marketability of our common stock as a private company;
•the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions;
•the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;
•the likelihood of achieving a liquidity event for our securityholders, such as an initial public offering or a sale of the company, given prevailing market conditions;
•the hiring of key personnel and the experience of management; and
•trends and developments in our industry, including the impact of COVID-19.
For valuations performed prior to October 31, 2020, Legacy Rover used the option pricing method (“OPM”) back-solve method. In an OPM framework, the back-solve method for inferring the equity value implied by a recent financing transaction involves making assumptions for the expected time to liquidity, volatility and risk-free rate and then solving for the value of equity such that value for the most recent financing equals the amount paid. This method was selected due to Legacy Rover’s stage and uncertainty regarding the timing and probability of possible future exit scenarios.
For valuations performed on and subsequent to October 31, 2020, Legacy Rover used a hybrid method of the OPM and the Probability-Weighted Expected Return Method (“PWERM”). PWERM considers various potential liquidity outcomes. This approach included the use of an initial public offering scenario, a strategic merger or sale scenario, and a scenario assuming continued operation as a private entity. Under the hybrid OPM and PWERM method, the per share value calculated under the OPM and PWERM are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share of the common stock before a discount for lack of marketability is applied.
Leases
For leases with a term greater than 12 months, the Company records the related right-of-use (“ROU”) asset and lease liability at the present value of lease payments over the term. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor.
The Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company determines its incremental borrowing rate based on the rate of interest that the Company would have
to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Goodwill
Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. Management has determined that the Company has a single reporting unit and performs its annual goodwill impairment test as of October 31, or more frequently if events or changes in circumstances indicate that the goodwill may be impaired.
The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if the Company concludes otherwise, then it is required to perform a quantitative assessment for impairment. The Company completed a qualitative analysis as of October 31, 2021 and no impairment of goodwill was recognized.
Recent Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this prospectus 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. Internal Control Over Financial Reporting
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
In connection with the preparation of our consolidated financial statements as of December 31, 2021 and 2020 and for the three years in the period ended December 31, 2021, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We did not design or maintain an effective control environment due to an insufficient complement of personnel with the appropriate level of knowledge, experience, and training commensurate with our accounting and reporting requirements. This material weakness contributed to the following additional material weaknesses:
•We did not design and maintain sufficient formal procedures and controls to achieve complete and accurate financial reporting and disclosures, including controls over the preparation and review of journal entries and account reconciliations. Additionally, we did not design and maintain controls to ensure appropriate segregation of duties.
•We did not design and maintain effective controls related to the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of U.S. GAAP of such transactions. Specifically, we did not design and maintain controls to timely identify and account for warrant instruments that are derivative financial instruments.
The material weakness related to accounting for warrant instruments resulted in the restatement of the previously issued financial statements of Caravel related to warrant liabilities, change in fair value of warrant
liabilities, additional paid-in capital, accumulated deficit and related financial statement disclosures. The other material weaknesses described above did not result in a material misstatement to the consolidated financial statements, however they did result in adjustments to several accounts and disclosures prior to the original issuance of the financial statements. Additionally, these material weaknesses could result in a misstatement of substantially all of the financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
•We identified an additional material weakness as a result of the material weakness in our control environment in that we did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (1) program change management controls for financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (2) user access controls to ensure appropriate segregation of duties that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (3) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (4) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
These IT deficiencies did not result in a material misstatement to the financial statements, however, the deficiencies, when aggregated, could impact our ability to maintain effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. Accordingly, we have determined these deficiencies in the aggregate constitute a material weakness.
We have begun implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing and include hiring additional personnel and implementing additional procedures and controls. While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period, we are committed to continuous improvement and will continue to diligently review our internal control over financial reporting.
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 us 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.
BUSINESS
Unless the context otherwise requires, all references in this section to the “Company”, “we”, “us”, or “our” refer to (a) the business of A Place for Rover, Inc. and its subsidiaries prior to the July 30, 2021 merger described below under “—Our History” or (b) Rover Group, Inc. together with its consolidated subsidiaries, after the consummation of that merger.
Our History
A Place for Rover, Inc., a Delaware corporation and, after the merger described below, our wholly owned subsidiary, was incorporated on June 16, 2011 and is headquartered in Seattle, Washington, with offices in Spokane, Washington and internationally in Barcelona, Spain. In March 2017, we acquired DogVacay, Inc to accelerate our presence and growth in the United States and Canada. In October 2018, we acquired all of the outstanding shares of Barking Dog Ventures, Ltd. to accelerate our presence and expand our growth in Europe.
Nebula Caravel Acquisition Corp., a Delaware corporation, our legal predecessor company, and a special purpose acquisition company sponsored by True Wind Capital was incorporated in September 2020 and closed its initial public offering in December 2020. On July 30, 2021, Caravel consummated the Merger with A Place for Rover, Inc. and Fetch Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Caravel. Pursuant to the Merger, Merger Sub merged with and into A Place for Rover, Inc., the separate corporate existence of Merger Sub ceased, and A Place for Rover, Inc. continued as the surviving corporation in the Merger and as a wholly owned subsidiary of Caravel. The Merger was approved by Caravel’s stockholders at a meeting held on July 28, 2021. At the closing of the Merger on July 30, 2021, Caravel changed its name to Rover Group, Inc.
On August 2, 2021, our Class A Common Stock, par value $0.0001 per share, and public warrants, formerly those of Caravel, began trading on The Nasdaq Global Market under the ticker symbols “ROVR” and “ROVRW,” respectively. We subsequently redeemed all of our outstanding public and private warrants in January 2022. In connection with the warrant redemption, the public warrants ceased trading on The Nasdaq Global Market effective as of the close of trading on January 12, 2022, and have been delisted. The warrant redemption had no effect on the trading of our Class A Common Stock, which continues to trade on The Nasdaq Global Market under the symbol “ROVR.” For more information on the warrant redemption, see Note 19 — Subsequent Events. As a result of the Merger, we raised gross proceeds of $268.3 million, including:
•the contribution of $275.1 million of cash held in Caravel’s trust account from its initial public offering, net of the redemption of Caravel common stock held by Caravel’s public stockholders of $146.8 million;
•$50.0 million private investment in public equity at $10.00 per share of our Class A Common Stock;
•$80.0 million of additional gross proceeds from the Sponsor Backstop Subscription Agreement between Nebula Caravel Holdings, LLC and Caravel pursuant to which True Wind Capital II, L.P. and True Wind Capital II-A, L.P. purchased an aggregate of 8,000,000 shares of our Class A Common Stock at $10.00 per share; and
•$10.0 million of additional gross proceeds from the sale of our Class A Common Stock at $10.00 per share pursuant to the Assignment and Assumption Agreement by and among Caravel, the TWC Funds, and BBCM Master Fund Ltd.
As a result of the Merger, we received net proceeds of $235.6 million, net of estimated transaction costs paid of $32.7 million. See Note 3 — Reverse Recapitalization for more information about the Merger. Mission and Purpose
We believe that everyone deserves to experience the unconditional love of pets, and Rover exists to make that possible.
We started Rover to break down the barriers to loving and trusted pet care so more people could experience that unconditional love. As pet parents ourselves, we wanted to build a community where we could connect with pet care providers who would treat our pets like family. In developing the Rover platform, we also believed that if we could make it easy for everyday pet people to start and grow their own small pet care businesses, we could do more than enable additional income for care providers and loving care for pets; we could unlock joy for pets, pet lovers, and pet parents everywhere. Over the years, we have discovered more: Growing Rover has revealed to us the depth and importance of the bonds we share with our pets—and the extraordinary empathy, care, and love that people in our neighborhoods can provide for their communities. Some of the best parts of being on the Rover team are the stories and anecdotes that we hear about the unique bonds between pets, pet parents, and the pet care providers who love and care for them.
Take Ziggy, a Jindo mix whose owners were getting married. Like many contemporary pet parents, they wanted to incorporate their beloved Ziggy into the ceremony—so they turned to Rover. The care provider they met through Rover joined them at their wedding, not only keeping Ziggy out of trouble so he’d look sharp in his matching dog-suit, but going so far as to walk him down the aisle to greet his newly married parents.
Consider pet care provider Sylvia, who doesn’t just love dogs—she gets them. She asks her clients to pack a t-shirt that they’ve slept in as part of their dog’s overnight bag. The shirt smells like home, and it helps their dog feel safe and connected while they’re away.
In other words, the pet care providers on Rover are at the heart of our business. They’re ordinary neighborhood pet people who, when they step in to care for your pet, reveal themselves to be extraordinary. Our shared love of pets is powerful, inclusive, and magnetic. Pets bring people together and can even give us a sense of belonging and meaning. It’s our privilege to be stewards of those connections and relationships.
Overview
Rover is the world’s largest online marketplace for pet care based on gross booking value, or GBV. We connect pet parents with loving pet care providers who offer overnight services, including boarding and in-home pet sitting, as well as daytime services, including doggy daycare, dog walking, and drop-in visits. Through December 31, 2021, over three million unique pet parents and more than 660,000 pet care providers across North America, the United Kingdom and Western Europe have booked a service on Rover, enabling millions of moments of joy and play for people and pets. The user base of our platform extends across the United States, Canada, the United Kingdom, and seven countries in Western Europe: Spain, France, Norway, Sweden, Netherlands, Italy, and Germany.
For pets and their parents, we started Rover to create a better pet care solution than the existing options of friends and family, neighbors and kennels. We built a marketplace where pet parents could match with pet people who wanted to earn extra income doing what they loved: spending time with pets. We believed that these matches not only enabled better care for pets, but also created joy for both parties, and we sought to radically simplify the logistics of pet care. We built a simple and easy-to-use platform that enables pet parents to discover, book, pay and review pet care providers online or in our app.
For pet care providers, we built tools to easily create a listing in the Rover marketplace along with simple tools for scheduling and booking care, communicating with pet parents, and receiving payment. To delight both parents and pet care providers, we invested in a customer service team to support them along the way. We went even further, with a foundational brand commitment to trust and safety. We developed features to facilitate safe, informed, and positive experiences for the people and pets in our community. We built a 24/7 in-house team to support our community if a problem arises during a stay and backed our marketplace with the Rover Guarantee to assist with certain out-of-pocket costs incurred by parents or pet care providers in the rare instance a service doesn’t go as planned. Safety has always been at the heart of what we do. Through it all, we have been guided by our love of pets and belief in the unique human-pet bond.
Based on GBV, Rover is the category leader in the online marketplace for pet care today. Our scale drives ongoing improvements powered by network effects, as we can facilitate more and better matches between pet parents and pet care providers as more people join our platform. GBV on Rover was approximately 11x the size of
the next closest online marketplace for pet care for the year ended December 31, 2021, up from approximately 7x for the year ended December 31, 2020, based on that marketplace’s publicly available gross booking data.
Scale in the market for pet care matters. Because each pet’s needs are unique, pet care providers—unlike service providers in many other marketplaces—are not interchangeable. Against that backdrop, our network of care providers enables us to facilitate the match between pet, parent, and provider to best meet the unique needs and preferences of all three. We had 250,000 active providers with a booking in 2021, and we believe our network represents the largest number of high-quality providers among online marketplaces for pet care. Moreover, we have carefully designed our technology and data algorithms to leverage our growing scale to help pet parents easily find the best matches. Our results speak for themselves—pet parents love Rover. From inception through December 31, 2021, pet parents had written more than 4.9 million reviews, and 97% of reviewed bookings had a 5-star rating. Pet parents who try Rover for the first time often become repeat customers. For the year ended December 31, 2021, approximately 81% of our bookings were repeat bookings. In 2020 and 2019, approximately 86% and 84%, respectively, of our bookings were from repeat customers.
The U.S. commercial market for non-medical pet services was $10.3 billion in 2019, according to Packaged Facts. But we believe the demand for high-quality, personalized pet care far exceeds the existing market. For example, based on surveys we conduct, typically 67% of the new pet parents on our marketplace were previously relying on friends, family, and neighbors, and had never used a commercial service for pet care. Based on the number of dogs and cats in the United States and estimates of travel and daytime care needs of pet parents, we estimate that our total addressable market for overnight and daytime services in the United States is approximately $79 billion.
We generate revenue from service fees charged to pet care providers and pet parents based on a percentage of the booking value on our marketplace. We also earn revenue from ancillary sources such as background checks, affiliate advertising deals, and the Rover Store. While the COVID-19 pandemic adversely impacted our 2020 operating results, we saw increased operating results for 2021 as compared to 2019 due to the lifting of the most severe COVID-19 restrictions and increasing vaccine availability and uptake even as as travel and work from home trends remained below pre-pandemic levels. We believe that demand for the pet care services offered through our platform will continue to rebound as people increasingly return to normalized travel and work activity. Moreover, consumer behavior has continued to shift meaningfully toward online and app-based experiences. Based on the combination of these factors, we believe that our business will return to strong growth when the pandemic subsides. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information. We are inspired to keep building our business to bring the love of pets to people everywhere, especially in the times when people need that companionship the most.
Pets and Their Love in People’s Lives
Pets offer people more than companionship; they fill lives with comfort, support, and belonging. In other words, they’re a steady force of unconditional love. So it follows that people are increasingly integrating them into their lifestyles, traditions and families.
Nearly nine out of ten households in the United States have or have had a pet. Sixty-seven percent of U.S. households currently have a pet, and another 20% previously owned a pet according to a 2020 National Pet Owners Survey report by the American Pet Products Association, or APPA. Generational trends in lifestyle contribute to this prevalence, with an increasing number of people choosing to bring a pet into their lives, likely driven, in part, by later average ages for marriage and children. Studies suggest that pets may decrease stress, improve heart health, and help children with their social and emotional skills, according to the U.S. National Institute of Health. In an era of social distancing during the pandemic, pet companionship and love has never been more important. A Packaged Facts survey from March 2020 indicated that 95% of dog owners and 94% of cat owners in the United States say that they “consider their dogs and cats to be part of the family.” This attitudinal trend is often called the “humanization of pets.” We serve a wide range of pet parents and household incomes, though our pet parents tend to
be slightly younger and more affluent when compared to the age and income of the average pet owner based on a survey conducted by APPA.
How People Spend on Pets
This “humanization,” in addition to driving the growth in pet-owning households, has combined with “premiumization,” another widespread trend, to accelerate spending on pets within households. According to the results of an APPA survey, 32% of dog owners and 28% of cat owners would prioritize their pets’ medical needs over their own. Led by Millennials and Generation Z, many pet parents increasingly consider the needs of their pets not just equally important to those of the rest of the family, but more important. While pet ownership in the United States increased 2% annually on average from 2011 to 2018, overall spending on pets increased 7% annually on average over the same period according to Market Watch. From 2014 to 2019, according to Packaged Facts, annual spending per pet-owning household on non-medical pet services, which include boarding, sitting, walking, grooming, and training, grew 26% from $120 to $152 per year. Additionally, pet spend has been recession-resilient in the past. During the 2008-2009 recession, spending on pets increased 17%, compared to decreased spend in many other sectors, including entertainment, food, and housing, according to Market Watch.
Our Market Opportunity
Existing Commercial Market
The total U.S. market for pet spending was $95 billion in 2019, including pet food, veterinary services, pet supplies, and non-medical services, according to Packaged Facts. Due to impacts from COVID-19 and the related restrictions on travel and activities, Packaged Facts estimates a reduction in the market in 2020 to approximately $79 billion, Packaged Facts then estimates growth at a compound annual growth rate, or CAGR, of 9.2% through 2024 to reach approximately $111 billion.
Within this market, every category except for non-medical services is highly penetrated online, with relatively few category players. In contrast, the non-medical pet services category is highly fragmented and largely offline. This category includes overnight care, daytime services, and grooming, with overnight care comprising the largest portion of the category. The non-medical pet services market is estimated to have reached $10.3 billion in 2019, and is expected to be the fastest-growing segment of the pet industry from 2020 to 2024, with an estimated CAGR of 18.6% according to Packaged Facts.
Pet Services Market Opportunity
We believe the existing commercial market for pet care is limited because of the challenges of traditional pet care service offerings. Based on surveys we have conducted, typically 67% of new customers to Rover report that they have never purchased pet care before. Customers report that they have previously relied on friends, family, and neighbors for pet care services because of dissatisfaction with their commercial options. We believe that this latent demand represents an enormous expansion opportunity for the pet services industry as whole. We estimate the total addressable market in the United Stated today to be approximately $79 billion, including approximately $69 billion in overnight services and $10 billion in daytime services.
Overnight Services
The table below details our calculation of the overnight services opportunity in the United States. According to the APPA, 67% of U.S. households, or 85 million households, had pets in 2020. To estimate trip nights per household, we take the Euromonitor estimate of 1.4 billion overnight trips with 2.4 people per household in 2019, from which we get 2.5 nights per domestic trip and 5.0 nights per international trip, for 3.9 billion total trip nights, which we calculate to be 11.4 total trip nights per household. The result is 964 million total addressable nights.
There were 97 million dogs and 76 million cats in U.S. households as of 2020, according to APPA, for a total of 173 million pets, an average of 2.0 per pet household. Based on our average nightly rate of approximately $35 per pet, this results in a total overnight market opportunity of $68.8 billion. This is more than 20x the size of the current commercial market for overnight pet services. Over the next ten years, with the growth of travel nights based on
Euromonitor estimates, and our estimate of the increase in pet households, we calculate that the market could grow to $100.2 billion.
Daytime Services
The table below details our calculation of the daytime services opportunity in the United States. There were 97 million dogs in pet households in 2020 according to APPA, and we estimate that figure can grow to 115 million over the next ten years. We estimate the number of services per year for dog grooming and walks and the percentage of pet households addressable for these services. Based on our historical average rate of $50 per groom and our average rate of $20 per walk, we estimate a total daytime market opportunity of $9.8 billion, with $5.8 billion from grooming services and $4.0 billion from walking services. This nearly $10 billion total addressable market is more than two times the size of the current commercial market for daytime pet services. Over the next ten years, with our estimate of the increase in pet households and addressable grooming households, we calculate that the market could grow to $13.4 billion per year. We believe opportunities in dog daycare and drop-in visits to be incremental to this market opportunity, as well as daytime service opportunities for cats.
In total, we estimate a $79 billion market opportunity today growing to $113 billion in the next ten years. Additionally, we estimate that this increases by approximately 30% when including the Canadian, United Kingdom, and Western European markets where we currently operate.
Overview of the Pet Services Market
Existing Options for Pet Parents
For the millions of pet parents with travel plans or busy schedules, existing care options are fraught with disadvantages, especially for parents who have concerns that their pet will not receive enough personalized and loving care.
•Family, Friends, and Neighbors. Most pet parents rely on short-term favors to care for their pets, but these arrangements can cause social guilt and require return favors. Pet parents choose friends, family, and neighbors so that their pet has a familiar experience. However, because the service is a favor, and not for pay, pet parents may feel unable to either specify or insist on particular levels of care. Friends, family, and neighbors often lack the experience to provide specialized care, and are not incentivized to provide reliable communication or deliver on specific pet care needs. Further, although these favors often occur with little or no direct cash transfer, once the costs of thank-you gifts and social capital are taken into account, many pet parents consider this approach to care to be anything but ‘free.’
•Local Independent Providers. Local mom and pop shops and independent professionals often operate at small scale with little to no online presence, primarily relying on word of mouth and marketing solutions such as flyers and local ads. As a pet parent, it is difficult to know where to find reliable information, who to call, and who to trust in the absence of consistent background checks, reviews, insurance, and other safeguards.
•Large Commercial Providers. Large commercial providers, such as kennels and daycares, cannot meet the individual needs of pet parents. First, they are often expensive. Second, many pets are not compatible with the crowded nature of large providers. Finally, pet parents may not feel comfortable with the quality of care their pets may receive from a commercial provider.
•Online Aggregators. Pet parents can also access general purpose online aggregators and directories, such as Craigslist, Nextdoor, or Yelp, to find pet care providers. However, pet parents may lack trust in these directories, or find it difficult to find an available and appropriate pet care provider. Providers they do find may not have verified reviews, have background checks, provide reliable updates, or provide other trust and safety features the pet parents desire.
What Pet Parents Want
We founded Rover because we believed a platform like ours could better address pet parents’ basic pet care needs—and that doing so represented an enormous business opportunity. As busy pet parents, we were ourselves familiar with the specific balance of quality, ease of use, and affordability that, if brought to market, could delight pet parents everywhere. In short, pet parents want:
•An environment where their pet feels happy and stress-free. Above all, pet parents care about how their pets feel when they are away. Pet parents want regular reassurance that their pets feel as comfortable, loved, and engaged as they would be at home. While some commercial providers try to address this need with innovations like pet webcams, pet parents often desire better confirmation that their pet is receiving loving care.
•Confidence and reassurance that their pets are receiving excellent, personalized care. Pet parents want the ability to carefully choose a provider and to confirm that their pets’ care is personalized to their unique needs and expectations. They also want to know that there are resources in place to effectively handle any problems that may arise while they are away from their pets.
•Technology-enabled ease of access and management. Pet parents expect to be able to use their mobile devices or computers to find available providers who will meet their pet’s needs. They want to effortlessly contact and communicate, book and pay for a service, and stay connected with both their pet and their pet care provider so they can feel confident their pet is being loved and is safe and happy in their absence.
•Care that suits their budget and their lifestyle. While many pet parents may find commercial solutions too expensive, they also live full lives and are willing to pay the right price for the right care. For other parents whose pets often have specific needs or requirements, cost is not a barrier in exchange for trusted and loving care.
Why Pet Parents Love Rover and Repeatedly Book
When a pet parent encounters Rover for the first time, they immediately know that we understand them. As pet parents new to Rover move through their first experience of browsing, booking, and managing care on our platform, our goal is to earn their trust and delight them by anticipating and addressing their unique needs. We aim to establish Rover as an extension of and improvement upon the pet care provided by friends and family: a loving, trustworthy, reliable option that becomes their go-to solution. Our success is reflected in the loyalty of our customers—for the year ended December 31, 2021, 81% of our bookings were repeat bookings.
•Personalized care for each unique pet. The first thing we present to pet parents is a wide variety of neighborhood pet care providers. Our platform empowers parents to choose providers based on availability, location, price, reviews, as well as more specialized options including type of home, access to yard, and the presence of children or other pets. Parents can find providers that will allow their pets on their furniture or will let them sleep on the bed. We also prompt pet parents to share details about their pets’ preferences, behavior, feeding habits, and lovable quirks to empower care providers to cater their care to each pet. We allow parents to recreate the familiar experience of loving care provided by friends, family and neighbors, but improve upon it by providing the tools to specify exact care standards, routines, communication, and environments so they can be confident their pet will thrive when they’re away.
•Care provider trust as a foundation. Pet parents see that providers on Rover share detailed profiles and personal information about themselves in order to build trust. Every provider has passed a third-party background check to offer peace of mind to pet parents. They include their names, pictures, and a description of their pet care experience and offerings, along with data on the number of repeat customers, verified customer reviews, and photos from previous stays. We also encourage pet care providers, pets, and pet parents to get to know each other before booking and mutually confirm that it’s a good match, through the use of “Meet & Greets.”
•Higher quality service at any price point. Pet parents find that pet care providers typically offer better quality service than traditional commercial offerings, at more affordable prices. For example, pet care providers on Rover’s platform charged an average cost per night per pet for boarding in the United States of approximately $40 in 2021, on the lower end of the national range of $29 to $80 per night at dog kennels in 2021 according to Homeguide.com. However, for pet parents seeking luxury experiences or specialized care for their pet, including pet massages, home-cooked food, or training, those services are available on Rover as well.
•Easy booking process. Pet parents have a simple and intuitive overall experience of finding, booking, and paying a pet care provider. Contacting a pet care provider through Rover us is as easy as a few keystrokes or taps on a phone, and most pet care providers respond in order to confirm the service within about three hours. Their personal and account information is secured, payments are cashless, and all credit card details are encrypted.
•Verifiability of quality and peace of mind. Once a booking is in process, pet parents typically receive pictures and videos of their pet through our app or online. To date, 140 million photos have been shared on our platform, or roughly an average of 5.6 photos per booking. Providers can also map their dog walks and share information with pet parents. In fact, providers reported 11.5 million pees and poops, and 2.4 million miles walked while caring for pets in 2019. In the year ended December 31, 2021, providers reported over 11.9 million pees and poops, and 3.0 million miles walked while caring for pets. Beyond the burst of joy that comes with seeing their pet’s smiling face while they’re away, this provides pet parents with peace of mind.
•Rover’s commitment to safety. Finally, pet parents see that trust and safety are at the heart of what we do. On top of our 24/7 support, we set clear community guidelines and provide features to facilitate safe, informed, and positive experiences for the people and pets in our community. In the rare instance that something goes wrong during a booking, the Rover Guarantee program covers members of our community up to a specified amount for costs arising from certain injuries or damages that occur during a service booked and paid through Rover. Our dedicated and in-house Trust & Safety team is equipped to offer steady, reliable, empathetic service to pet parents and pet care providers alike should any questions arise.
What Pet Care Providers Want
Our success is built on the foundation of passionate and dedicated pet care providers who have chosen to provide their services through Rover. Over the years, we have gotten to know the hundreds of thousands of care providers on the Rover platform, and understand what they want:
•Flexibility and empowerment. Pet care providers want to offer their services on their own terms. Some providers who use Rover have a separate job, are retired, or work at home and are looking for a “side hustle,” while others are looking to build a pet care business that can grow and scale to a full-time commitment. Our pet care providers tend to be younger when compared to the average pet owner based on a survey conducted by APPA.
•The love of pets in their lives. Pet care providers are driven by a shared love of pets. Passion for the playful energy and sweet companionship of a pet is a prerequisite. As one pet care provider shared in a November 2020 survey, they offer their services on Rover “to experience having a pet because I don’t have time for one—and for the extra money.” It’s a common refrain among our provider community: offering pet care is more than a way to make money. We are consistently struck by their passion for pets and providing excellent care.
•Meaningful earnings that suit their schedules. Some pet care providers seek to make thousands of dollars per year, while others are satisfied with a few stays per year. Whatever level they choose, satisfaction in providing care is directly tied to their ability to maximize time with pets, and minimize time on logistics, marketing, and other administrative duties. Our platform offers tipping and daily pricing services to help our care providers increase their earnings potential.
Why Pet Care Providers are Attracted to Rover and Stay on Our Platform
Similar to pet parents, when prospective pet care providers encounter Rover for the first time, we aim to anticipate and address many of their needs in advance in a way that they notice immediately. For the year ended December 31, 2021, 68% of our bookings were with pet care providers who had received bookings on our platform in 2020, as we saw an influx of new providers join our platform and receive bookings in 2021.
•Easy access to nearby demand from pet parents. The first thing that we want prospective providers to notice is that other providers in their neighborhoods have amassed dozens, if not hundreds, of reviews and repeat bookings. By browsing the profiles, reading the provider reviews, and observing stay photos, they can quickly get a sense for the experience of offering services through Rover. And by observing the clear, straightforward profiles of the most successful providers in their areas, potential pet care providers can easily appreciate the effort that is required to establish a presence on the platform.
•Simple listing setup with an emphasis on trust. Pet care providers who establish a presence on Rover discover that, while the process itself is straightforward, it’s in everyone’s best interest for them to build trust and transparency with pet parents. Specifically, pet care providers are required to pass a background check in the United States and Canada or identity verification in the United Kingdom and Europe, and disclose pertinent details about themselves and their residences that are reviewed by Rover specialists. They are encouraged to reach out to members of their community for testimonials about their trustworthiness and experience in pet care that are then made available to pet parents. These measures reassure pet care providers that they are joining a platform that will represent them as trustworthy and reliable.
•Flexible, straightforward booking management tools. Our platform offers tools that allow pet care providers to manage bookings, retain information about the pet parents and pets they have booked, and safely communicate (including through their anonymized Rover number) to share photos, videos, and GPS mapping. They can receive secure and convenient online payments, including tips, set their availability with our calendar feature, and only book care that’s a fit for their preferences and schedule—and they can do all this through a single app or via the Rover website.
•24/7 support, for problems big and small. If something goes wrong during a booking, pet care providers have the support of our customer service and Trust & Safety teams as well as the Rover pet care community in helping to resolve issues. For example, Rover customer service can connect pet care providers to a third-party veterinary telemedicine service to help them assess the situation if a pet under their care becomes ill. Further, the Rover Guarantee program provides peace of mind for pet care providers as well as pet parents.
Our Marketplace Creation Strategy
To create this new market for pet services, which requires both local network effects and platform network effects, we have developed a local marketplace and brand strategy. In particular, by providing excellent customer satisfaction, with 97% 5-star reviews, we drive word of mouth growth in a local marketplace. This drives our brand in combination with efforts such as content marketing and our leading blog for pet lovers.
•New pet parents and pet care providers join Rover organically. Pet parents and pet care providers from neighborhoods covering 96% of the United States population have signed up with Rover. In the year ended December 31, 2021, 43% of new pet parents came to us through word-of-mouth—50% in our largest U.S. markets. We also complement word-of-mouth momentum with content to drive awareness of Rover with more pet lovers. We created The Dog People, our blog, in 2014, and have scaled it to nearly seven million monthly unique visitors as of December 31, 2021, one of the largest pet blogs in the world.
•Our matching algorithm increases customer satisfaction, growing the marketplace. Unlike marketplaces that invest primarily in acquisition marketing to create a flywheel of growing demand and supply, Rover’s matching algorithm is the key to our marketplace creation strategy. Facilitating great matches between pet, parent, and provider is the most important thing we do. Rover engineers, data scientists, and statisticians develop, maintain, and update our algorithms. We use reviews, proximity, browsing, contact, and booking data to predict which pet care providers are most likely to be great matches when pet parents search for providers in our marketplace. The stages of our matching algorithm are:
◦More bookings lead to more data. With more bookings we increase the density and diversity of our marketplace, adding to our data science asset and improving our ability to facilitate better matches through machine learning.
◦More data leads to better matches. As activity on our platform grows, we build better data density in a geography over time. More density leads to better matches. As the density of providers increases in a given geography the likelihood of finding the best provider in close proximity to match the nuanced needs of our pet parents increases. We monitor over a hundred attributes of a booking, including proximity, response time, and likelihood to rebook.
◦Better matches lead to more bookings. Our proprietary Rover algorithm learns to present pet care providers who are most likely to match for a booking, and who have quick response times, increasing the likelihood that a search turns into a booking.
•Repeat bookings increase, driving brand awareness and word of mouth attraction of more pet parents and pet care providers. As pets and parents have better experiences on Rover, they are increasingly more likely to rebook services. Increases in loyalty from pet parents also increases word of mouth marketing to other pet parents, who then join the platform. These pet parents in turn create even more information that Rover can use to make the experiences of other pets, parents, and pet care providers even better in the future, creating a virtuous cycle. Our brand sits at the nexus of trust and love, and our brand strategy is to earn our place in pet parents’ “circle of trust” for pet care. We do this by establishing Rover as an extension
and improvement upon pet care provided by friends and family: a loving, trustworthy, reliable option that becomes the go-to solution.
In these ways, improvements in our matching algorithm have compounding, accelerating effects on the ability of our marketplace to scale, and to leverage our scale into faster scaling, as seen in the figure below.
We complement our organic growth with paid customer acquisition. Our algorithm improves paid marketing efficiency as a local marketplace grows. Once our matching algorithms have enough data to increase our conversion rate and rebooking rate in a market, we accelerate investment in paid customer acquisition. In the twelve months ended December 31, 2019, 46% of new bookings came from paid channels, while in the twelve months ended December 31, 2021, 38% of new bookings came from paid channels. We use predictive analytics to invest in marketing and target a one to two quarter payback period, inclusive of variable costs. Because of our matching algorithm, we can acquire customers more efficiently than competing platforms with lower conversion rates.
Competitive Strengths
As we grow our online pet care marketplace, our competitive strengths relative to other online platforms include:
•Largest number of high-quality pet care providers. Pet care providers are attracted to the Rover platform. As pet parents conduct more transactions on the platform, they create additional bookings for pet care providers. Additional bookings enable care providers to make more money and to manage their listings so that the matches they receive are even more targeted to their own preferences without sacrificing earnings. For example, a pet care provider who desires to book only with Havanese dogs may find herself able to do that over time as she amasses sufficient reviews and repeat customers, and as the Havanese bookings increase. This ability to precisely satisfy the unique preferences of pet care providers is very difficult to replicate and translates to enormous provider satisfaction and advocacy. Pet care providers come to our platform organically and stay with it. For example, we find that 70% of our providers receive three or more bookings in their first 12 months on the platform. For those in this group, when comparing year 2 revenue to year 1 repeat revenue, providers experience above 90% revenue retention. In subsequent years, we see revenue retention increase.
•Rover algorithm and data scale to make better matches. The scale and breadth of Rover’s pet care provider network, coupled with the evolution of our algorithm, enables us to continuously improve matches on our platform. Instead of just investing in marketing to grow our marketplace, we have focused on matching the needs and preferences of each individual pet parent to the best pet care provider. As a result, pet parents who were first-time users of Rover during the three months ended December 31, 2021 were over two times more likely to find and book with a pet care provider than first-time users in 2012.
•Multiple network effects. According to publicly available gross booking data, we are the leading marketplace for pet services in the United States, Canada and Europe; GBV on Rover was approximately 11x the size of the next closest online marketplace for pet care for the year ended December 31, 2021, up from approximately 7x for the year ended December 31, 2020, based on that marketplace’s publicly available gross booking data. With our leading scale, we can offer pet parents and pet care providers the benefits of density and diversity in a local marketplace. Pet parents searching for care on Rover can often find providers who live in their neighborhoods, or even—in the case of people in large cities—in their own apartment buildings. They can also find pet care providers who have both a broad diversity of environment, offerings, availability, capabilities, and price points to meet the unique needs of their pets. Many of these providers will also have dozens, if not hundreds, of reviews and repeat customers. This combination of density, diversity, and quality results in better matches and more positive experiences on our marketplace.
•Strong pet parent loyalty and word-of-mouth growth. In 2021, 1.3 million unique pet parents had a booking on our platform. We define pet parent cohorts by the month/period in which pet parents first booked on our platform. Of our January 2021 cohort, 63% of new pet parents on Rover rebooked within the first 12 months. Our continuous excellence in facilitating initial matches between pet, parent, and provider translates directly into advantages in our ability to retain pet parents and match them with providers who offer other types of services as well. For example, a new pet parent who books a drop-in visit as a first service on Rover may translate her delight into trials of doggy day care, or dog walking. The number of bookings per repeat customer has grown from 3.7 in year 1 for our January 2013 cohort, to 7.3 in year 1 for our January 2021 cohort.
•Top Tier trust and safety support designed for pet care. Our platform provides trust and safety support to both pet parents and providers by carefully selecting the trust and safety agents that assist parents and providers with everything from emergency vet visits to questions about pet behavior. Rover has spent the last eight years evolving the practice of supporting parents and providers via phone and email.
Growth Strategies
We aim to build a global brand that stands for excellence in pet care through the pursuit of the following strategies. These individual vectors accelerate each other by driving the entire marketplace with additional cross-sell opportunities and brand and data synergies.
•Attract and delight customers in existing geographies and within existing services. We believe that considerable growth remains within our existing service offerings and geographies. Our cumulative customer volumes represent a tiny fraction of this potential. From inception through December 31, 2021, over three million unique pet parents had booked a service on Rover, which represents approximately 2.5% of the estimated 125 million pet households in the United States, Canada and Western Europe. By continuing to enhance our platform, we make it fast and easy to find a trusted pet care provider in your neighborhood.
•Expand service offerings and pets covered. We plan to introduce additional service offerings in the Rover marketplace, further delighting pets, parents, and providers and driving significant revenue growth. For example, in late 2015 we introduced dog walking, drop-in visits, and doggy day care as complements to dog boarding and house sitting. In the year ended December 31, 2021, those services had expanded to 31% of total GBV.
We launched Rover with pet services for dogs and found that pet lovers use Rover to arrange care for animals of all types. In 2018, we modified our applications to better support cats on the platform. Over time we expect to
enhance our cat offering and expand offerings to more types of pets. We will continue to add offerings to delight pet care providers and pet parents.
•Increase international coverage. We aim to serve pet parents and pet care providers around the world. In the near term, our focus is to complete our European footprint. While we believe that our current footprint represents the most opportunity in Western Europe, we also believe that Belgium, Ireland, Austria, Switzerland, Denmark, and Poland are attractive markets that could offer meaningful expansion to our existing European opportunity. We plan to expand organically, and continue to evaluate acquisitions to supplement our organic growth and operating leverage. Over the longer term, we may expand into additional attractive geographies.
•Grow advertising and retail offerings. We plan to leverage our brand to expand revenue from non-service offerings. We offer The Dog People blog and Rover Store to make life easier and more joyful for pet parents and pet care providers. As part of our publishing platform, Rover pet care experts and writers craft customer-centric product reviews, recommendations, and information, which have become a trusted source on all things pet-related. Over time, we entered into affiliate relationships with select retail partners to monetize our content operation. Our second initiative to leverage our brand to make life easier for pet parents is the Rover Store, which offers products that strengthen bonds between people and the pets in their lives. The Rover Store celebrates unique human-pet relationships with curated and high-quality third-party merchandise alongside bespoke Rover-branded merchandise and materials for care providers to grow their pet care businesses on Rover.
•Expand strategic partnerships. We believe that, over time, we can extend the value of Rover with strategic partnerships in the pet industry and others, including travel, hospitality, and omni-channel retail. We anticipate that many of these partnerships will be structured as affiliate relationships in which the partner introduces Rover to their customer base, and in turn receives a referral commission for completed bookings. These mutually beneficial partnerships can enable efficient growth by connecting Rover to new audiences of highly-qualified prospective customers: pet parents interested in travel, leading busy lives, and actively shopping for products they and their pets will love. By introducing Rover to these audiences through brands such audiences know and trust, we can target our awareness-building efforts and connect more pet parents with quality, local pet care providers.
Our Services
The figure below describes the services offered on our marketplace, with GBV and average price based on 2021 results. To find a pet care provider, following contact on our app, pet parents often arrange a Meet and Greet with the pet care provider. Once the service begins, pet parents can receive regular photos and updates from the pet care provider. Following the service, pet parents can review the pet care providers. Often, new pet parents come to our platform ahead of a planned trip, and once they experience Rover, they expand to daytime services as well. We introduced recurring bookings for daytime services in 2019 to allow pet parents and pet care providers to set a regular schedule for their services.
A Foundation of Trust and Safety
Rover was founded in reverence for the unique bond between each pet and parent, so no pet, parent, care provider, or safety incident is a mere statistic. Building safety into every booking is foundational at Rover, and we are committed to promoting safe stays. In the rare instance something doesn’t go as planned, we’ve built an experienced team to assist pet parents and care providers alike. We have built safety features into our platform which we believe, taken together, are unparalleled in comparison to other pet care options. This is made possible by a number of investments we have made to bring peace of mind to pet parents.
•Watchlist and background checks. All new pet care providers on our platform in the United States and Canada pass third-party background checks in order to offer their services on Rover. In the United States, pet care providers are checked against national criminal offense databases, sex offender registries, and certain regulatory, terrorist, and sanctions watchlists, and we’ve also moved to enhanced background checks, which is more comprehensive and includes county level verification. In the United Kingdom and Europe, we use a third-party to conduct an identity verification on all pet care providers. All pet care provider profiles are also subject to review and approval by our team of pet care provider specialists.
•Community standards. We move quickly to correct behaviors that are not consistent with our community guidelines. We regularly remove both pet parents and pet care providers from our platform if they behave in ways that violate our community guidelines. In doing so, we aim to preserve the integrity of our platform and keep Rover safe for pets, parents, and providers.
•Detailed pet care provider profile. All pet care providers on our platform provide a detailed profile and personal information such as name, profile picture, personal address, and pet care experience, among other information. This information, along with data on the number of repeat customers and verified customer reviews, provides additional trust for pet parents.
•Personal information privacy. Pet parents and pet care providers can meet and communicate through the Rover platform without sharing their personal information with each other until they schedule a booking or decide to share personal information via Rover messaging.
•Customer reviews. After a booking is complete, pet care providers can write reviews of the pets and respond publicly to the pet parents’ review of themselves. From inception through December 31, 2021, our pet parents and pet care providers had written more than 4.9 million cumulative reviews, and 97% of our reviewed bookings had a 5-star rating.
•Support. As a commitment to quality experience and peace of mind for our pet care providers and parents, our support line is available 24 hours a day, seven days a week in the United States and Canada, 9:00 am to 6:00 pm in the United Kingdom, and 10:00 am to 7:00 pm in Europe. Pet care providers also have access to advice from qualified veterinary professionals in case of emergencies. In the unfortunate event that a pet care provider needs to cancel at the last minute, our Reservation Protection means our customer service team will help the pet parent find someone new on the Rover platform who’ll offer great care for their pet.
Our People and Culture
Amazing people come to work at Rover because they hear about our culture. Our leadership team is committed to building and sustaining a culture that challenges people to be the best contributors to the business that they can be, but also welcomes and values them as human beings with everyday struggles that show up in the workplace. As a result, we have built a team of results-oriented and data-first professionals who are also collegial, personable, and genuinely nice to be around.
Our approach for building culture is explicit. “Culture” can be defined as “the quality in a person or society that arises from a concern for what is regarded as excellent.” We subscribe strongly to this idea and, as a company, have established those ideas that are excellent in the form of our company values. These values are not simply words on paper; they are statements that we take seriously and that we reinforce regularly during our interview process, in our employee review and development process, in our consideration of internal promotions, and in regular company presentations. These values are tied directly to specific, unique-to-Rover behaviors that we encourage, and others that we do not. They are worth stating here in their entirety:
•Commitment to our community. We do our very best, every day, to serve the needs of pet care providers, parents, and their pets, so they feel a part of our community. Their safety and well-being are top priority.
•No office politics. We lean into the hard stuff, own our decisions, and prioritize business goals over short-term career interests. We have respect for transparency and reverence for vulnerability, and we tell it how it is—including about ourselves.
•Intentional balance of pace and precision. We rely on data and analysis to drive decisions, and we’re deliberate about balancing speed with the risk of error. And when it’s time to go fast, we move. We’re not intimidated by failure, accepting occasional errors of action as evidence of momentum.
•Focus on impact. We don’t waste time and we don’t waste money. We value results, not just insights or effort.
•Discipline in the way we debate. We get the right people involved in key conversations. When we spot a problem, we propose a solution. We believe that the best business outcomes come from a diverse set of perspectives. And when the decision parent makes a call, we lock arms to support its success.
•Devotion to each other as people. We’re driven by seeing our people succeed and grow. Families and life events come first, and we make space for fun and celebration. We’re committed to building a culture of inclusivity and diversity and ensuring everyone contributes to their fullest potential.
•Relentless pursuit of inspiring outcomes. We’re determined to do our jobs better than they’ve ever been done, and we inspire each other by pushing past our own perceived limitations—with the full knowledge that doing so will be uncomfortable.
Development and Technology Infrastructure
Our technology vision is to build and deliver secure, flexible, scalable systems, tools, and products that exceed our customers’ expectations, accelerate growth, and improve productivity. Our guiding principle is to aim for a technology architecture that is modularized along natural domain boundaries emerging from how our business works.
We built our marketplace to constantly improve in its ability to match unique pets with unique pet care providers as the business scaled. Our proprietary core booking funnel platform connects to the frontend customer web and mobile clients, as well as to our support operations team and our data science platform. We collect and secure information generated from customer activity and use machine learning to continuously improve our matching algorithm. We have a common platform that allows us to seamlessly internationalize our product, integrate images and videos, use experiments to optimize customer experience and test product improvements in real time, monitor our site reliability, and rapidly respond to incidents. Finally, our core booking funnel platform connects to leading third party vendors for communications, payment processing, IT operations management, as well as background checks.
We have a research and development culture that rapidly and consistently delivers high-quality products and enhancements to the performance, functionality, and usability of our platform. As of December 31, 2021, we have assembled a team of 119 highly skilled technical leaders, engineers, designers, and computer and data scientists whose expertise spans a broad range of technical areas. We organize our team with product development, platform engineering, data engineering and analytics, cloud engineering solutions, and information security. We focus on customer experience, quality, consistency, reliability, and efficiency when developing our software. Our offerings are mobile-first and operating system-agnostic. We follow agile methodology, frequently update our software products and have a regular software release schedule. Our products and systems are built on secure and scalable technology platforms and services that enable us to deliver customer-centric products and services on infrastructures that manage peaks in demand.
We have a commercial agreement with AWS for cloud services to help deliver and host our platform. As a result of this relationship, we believe we are more resilient to surges in demand on our platform or product changes we may introduce. See “Risk Factors—We primarily rely on Amazon Web Services to deliver our services to users on our platform and any disruption of or interference with our use of Amazon Web Services could adversely affect our business, financial condition and operating results.” We designed our platform with multiple layers of redundancy to guard against data loss and deliver high availability. Full disk snapshots of the database are performed daily, and databases can be restored to any point in time within the retention period using our database services’ point-in-time recovery features. In addition, as a default, redundant copies of content are stored independently in at least two separate geographic regions and replicated reliably within each region. We are also investing in iterating and continuously improving our data privacy, data protection, and security foundations and continually implement, review, and update our related policies and practices.
Operations and Support
Our operations and support team assists pet parents and pet service providers with items such as changes to existing bookings, questions concerning completion of a booking, addressing safety issues such as illness or other complications, and the initial quality review of pet service provider profiles. We are proud of our success in providing excellent support to both pet parents and providers. In the United States and Canada, our support team offers 24/7 assistance in both French and English. We rely on a network of third-party partners to handle most of our customer service-related inbound requests, while more sensitive issues are handled by our employee teams located in Seattle and Spokane.
In Europe, all of our service-related contacts, both voice and email, are handled by employees located in Barcelona. These agents are trained to handle both routine and escalated contacts. We offer local language support for all the countries in which we operate, with the hours of operation for this support varying by language.
Marketing
Our marketing strategy primarily consists of acquisition marketing, brand marketing, and our blog, The Dog People.
We manage our digital demand acquisition marketing at a local level. In the earlier stages of maturity within a specific geography, we use acquisition marketing to complement organic growth and increase information for our
algorithm. As a specific geographic marketplace matures, we see the proportion of new bookings driven by word-of-mouth increase. Once a marketplace is more mature, we accelerate acquisition marketing with a faster payback period and higher expected lifetime value for a new pet parent. Marketing spend, inclusive of headcount, represented 18% of GBV in 2018, 11% in 2019, 7% in 2020, and 4% in 2021 for the years ended December 31.
In response to the COVD-19 pandemic, we modified our approach to marketing in light of the depressed demand and increasing cancellation rates. As travel restrictions eased and market conditions began to improve in 2021, we increased our paid marketing acquisition, and as a result drove strong new customer bookings for the year. During the third and fourth quarters of 2021, we saw depressed demand due to the Delta and Omicron variants of COVID-19, which adversely impacted marketing efficiency for those periods. For additional information regarding the impact of the COVID-19 pandemic on our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19.” Our brand marketing strategy consists primarily of word of mouth, social media, our The Dog People blog, public relations, and up-funnel media buys that fit within our marketing payback guidelines. Our brand strategy is to earn a place in pet parents’ “circle of trust” for pet care. We do this by establishing Rover as an extension of, and improvement upon, the pet care provided by friends and family: a loving, trustworthy, reliable option that becomes the go-to solution.
We created The Dog People blog in 2014 and have scaled it to nearly seven million monthly unique visitors in 2021, making it one of the largest pet blogs in the world. In addition to driving awareness of Rover to prospective customers, The Dog People helps us to constantly reinforce our brand with pet parents and pet care providers who are currently on the platform. Historically, our content has focused on helpful, instructional articles designed to make it easier for people to have pets in their lives and spotlighting relevant stories that celebrate the joy of pets.
Employees
As of December 31, 2021, we had 372 employees worldwide, including 119 in product development, 35 in marketing, 148 in operations and support, and 70 in general and administrative. We also engage contractors and consultants. None of our employees are represented by a labor union. We have not experienced any work stoppages.
When not working from home due to a global health pandemic, our employees work in a collaborative, fun, and engaging environment with our four-legged friends in our Seattle headquarters, as well as our regional offices in Barcelona and Spokane. We’ve recently commenced hiring for a possible second operations center in San Antonio, Texas.
Because of the devastating impact of the COVID-19 pandemic, we made the difficult decision to reduce our workforce by approximately 200 employees in the first half of 2020. For impacted employees, in addition to severance, we extended health benefits for six months and offered a longer exercise window for stock options. To support our teams during that difficult time, our management team focused on being intentional about how we communicate, providing context for our decisions, and acknowledging the ongoing human impact of the pandemic and the reduction in force to our employees.
Properties
Our corporate headquarters are located in Seattle, Washington and consists of approximately 91,000 square feet under an operating lease that expires in 2030. We sublease approximately 31,000 square feet of our corporate headquarters. We lease additional offices in Spokane, Washington, and Barcelona, Spain. We use our corporate headquarters and our other offices primarily for our management, engineering, marketing, operations and support, accounting, finance, legal, human resources, general administrative, and information technology teams.
We believe that these facilities are generally suitable to meet our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations. See Note 11—Commitments and Contingencies for more information about our lease commitments.
Competition
Our customers consist of pet parents and pet care providers, and we compete to attract and retain both pet parents and pet care providers on the basis of brand appeal, commitment to safety, customer service, and the usefulness and convenience of our platform. We also compete, with respect to pet parents, on quality, affordability and variety of offerings, and, with respect to pet service providers, on the ability to generate income.
The markets in which we operate are highly fragmented. We face multiple competitors across different categories, and our competitors vary in both size and breadth of services. We expect competition to continue, both from current competitors, who may be well-established and enjoy greater resources or other strategic advantages, as well as new entrants into the market, some of which may become significant competitors in the future. Our main competitors include:
•Friends, family, and neighbors. Our largest competitive dynamic remains the people to whom pet parents go for pet care within their personal networks.
•Local independent operators. Local mom and pop shops and independent professionals often operate at small scale with little to no online presence, primarily relying on word of mouth and marketing solutions such as flyers and local ads. As a pet parent, it is difficult to know where to find reliable information, who to call, and who to trust.
•Large commercial providers. Large commercial providers, such as kennels and daycares, often struggle to meet the individual needs of pet parents and their pets. Such providers can be expensive, and their facilities are often crowded, inducing stress in some pets and leading pet parents to question the quality of care their pets receive.
•Online aggregators and directories. Pet parents can also access general purpose online aggregators and directories, such as Craigslist, Nextdoor, or Yelp, to find pet care providers. However, pet parents may lack trust in these directories, or find it difficult to find an available and appropriate pet care provider.
•Other digital marketplaces. We compete with services such as Wag, the next largest online marketplace for pet care, and the pet care offering on Care.com in the United States, and small operators such as Gudog in Europe and Pawshake in Europe and Canada. We differentiate ourselves with our pure play and scaled offering.
We believe that we compete effectively against each of these competitors given our scale, brand, trust, service, convenience, data, quality of care, and affordability, and ability of care providers to generate income.
Seasonality
Our bookings are impacted by seasonal trends. We typically experience stronger bookings during the months of June, July, and August, and November and December, which in a typical year coincides with high travel demand related to summer vacation and holiday travel. This seasonality impacts bookings, GBV, revenue, marketing and service operations expenses. Bookings can also be impacted by the timing of holidays and other events.
Intellectual Property
We believe that our intellectual property rights are valuable and important to our business. We rely on trademarks, copyrights, trade secrets, license agreements, intellectual property, assignment agreements, confidentiality procedures, non-disclosure agreements, and employee non-disclosure and invention assignment agreements to establish and protect our proprietary rights. Though we rely in part upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees and the functionality and frequent enhancements to our platform are larger contributors to our success in the marketplace.
We have an ongoing trademark and service mark registration program pursuant to which we register our key brand names and product names, taglines, and logos in the United States and other countries to the extent we determine appropriate and cost-effective. As of December 31, 2021, we held nine registered trademarks in the
United States and 19 registered trademarks in foreign jurisdictions. We also have common law rights in some trademarks and pending trademark applications in the United States and foreign jurisdictions. In addition, we have registered domain names for websites that we use in our business, such as www.rover.com and other variations.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged.
Data Privacy, Data Protection and Security
We are committed to earning and maintaining the trust of our customers and our employees, and as such, we place an emphasis on data privacy, data protection and security. Our privacy and information security program is designed and implemented, both within our internal systems and on our platform, in an effort to address the security and compliance requirements of personal or otherwise sensitive or confidential data related to pet parents, pet service providers, and our employees.
We have a dedicated team of professionals that focuses on technical measures such as application, network, and system security, as well as policy measures related to privacy compliance, internal training and education, and documented incident response protocols. We maintain a documented information security program that includes periodic scans designed to identify security vulnerabilities on our servers, workstations, network equipment, production environment, and applications, and provides for subsequent remediation of any discovered vulnerabilities according to severity. We also conduct regular penetration tests and remediate according to severity for any vulnerabilities found.
We encrypt sensitive and proprietary information, as well as the personal information of our customers and our employees, both in transit (using secure transport layer security cryptographic protocols) and at rest. We use multi-factor authentication, permissioning software, audit logs, and other security controls to control access to internal systems that contain personal or other confidential information.
We design and implement our platform, offerings, and policies with a goal of facilitating compliance with evolving privacy, data protection and data security laws and regulations and demonstrate respect for the privacy and data protection rights of our customers and employees. We publish our customer-related privacy practices on our website, and we maintain certain additional internal policies and practices relating to the collection, use, storage, and disclosure of personal information. We maintain a process for responding to requests made by law enforcement or government authorities for the personal information of our customers, and in connection with that process, we generally require a subpoena, court order or similar legal process prior to providing such personal information.
Publication of our privacy statement and other policies and notices regarding privacy, data protection and data security may subject us to investigation or enforcement actions by state and federal regulators if those statements, notices or policies are found to be deficient, lacking transparency, deceptive, unfair, or misrepresentative of our practices. We also may be bound from time to time by contractual obligations related to privacy, data protection, or data security.
The laws and regulations to which we are subject relating to privacy, data protection, and data security, as well as their interpretation and enforcement, are evolving and we expect them to continue to change over time. For example, the California Consumer Privacy Act, or the CCPA, which went into effect on January 1, 2020, among other things, requires covered companies to provide specified disclosures to California consumers, and affords such consumers abilities to opt out of certain sales of personal information. Additionally, in November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020, or CPRA. The CPRA further expands the CCPA with additional data privacy compliance requirements that may impact our business, and establishes a regulatory agency dedicated to enforcing those requirements. Guidance related to the CCPA and CPRA continues to evolve. In addition, on March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, or VCDPA, which will take effect on January 1, 2023, and the Colorado Privacy Act, passed on June 8, 2021, will take effect on July 1, 2023. Both laws emulate the CCPA and the CPRA in many respects, but each law includes its own unique compliance requirements. Other privacy and data security laws and regulations to which we may be subject include, for example, the California Online Privacy Protection Act, the Personal Information Protection and Electronic
Documents Act, the Controlling the Assault of Non-Solicited Pornography and Marketing Act, Canada’s Anti-Spam Legislation, the EU General Data Protection Regulation, the EU ePrivacy Directive, the Telephone Consumer Protection Act, and Section 5 of the Federal Trade Commission Act.
More generally, the various legal obligations that apply to us relating to privacy and data security may evolve in a manner that relates to our practices or the features of our mobile applications or website. We may need to take additional measures to comply with new and evolving legal obligations and to maintain and improve our information security posture in an effort to reduce information security incidents or avoid breaches affecting personal information or other sensitive or proprietary data. See “Risk Factors—Changes in laws or regulations relating to privacy, data protection, or the protection or transfer of data relating to individuals, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations relating to privacy, data protection or the protection or transfer of data relating to individuals, could adversely affect our business.” Government Regulation
We are subject to a wide variety of laws, regulations, and standards in the United States and foreign jurisdictions. These laws, regulations, and standards govern issues such as worker classification, labor and employment, anti-discrimination, payments, pricing, whistleblowing and worker confidentiality obligations, animal and human health and safety, text messaging, subscription services, intellectual property, consumer protection and warnings, marketing, product liability, environmental protection, taxation, privacy, data protection, data security, competition, unionizing and collective action, arbitration agreements and class action waiver provisions, terms of service, e-commerce, mobile application and website accessibility, money transmittal, and background checks. These laws, regulations, and standards are often complex and subject to varying interpretations, in many cases due to their lack of specificity or unclear applicability, and as a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state, and local administrative agencies, and could be interpreted by regulators and courts in ways that could materially adversely affect our business, results of operations, and financial condition. If we are unable to comply with these laws or regulations in a cost-effective manner, we may need to modify impacted services and our platform, which could require a substantial investment and loss of revenue, or cease providing the impacted service altogether. If we are found to have violated laws or regulations, we may be subject to significant fines, penalties, and other losses.
National, state and local governmental authorities have enacted or pursued, and may in the future enact and pursue, measures designed to regulate the “gig economy.” For example, in 2019, the California Assembly passed AB-5, codifying a narrow worker classification test known as the "ABC test," which has had the effect of treating many "gig economy" workers as employees. AB-5 includes a referral agency exemption that specifically applies to animal services and dog walking and grooming. We believe that pet care providers who use the Rover platform either satisfy the ABC test, fall within the referral agency exemption, or both.
In addition, other jurisdictions could adopt similar laws that do not include such carve outs and which, if applied to Rover’s platform, could adversely impact its availability in those jurisdictions and our business. See “Risk Factors—If pet care providers are reclassified as employees under applicable law, our business would be materially adversely affected.” Other types of new laws and regulations, and changes to existing laws and regulations, continue to be adopted, implemented, and interpreted in response to our business and related technologies. For instance, state and local governments have in the past pursued, or may in the future pursue or enact, licensing, zoning or other regulation that impacts the ability of individuals to provide home-based pet care.
We proactively work with state and local governments and regulatory bodies to ensure that our platform is available broadly.
Legal Proceedings
For information regarding legal proceedings in which we are involved, see Note 11—Commitments and Contingencies under the subsection titled “Litigation and Other” in our Notes to Consolidated Financial Statements.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The following is a description of each transaction since January 1, 2019, and each currently proposed transaction, in which:
•Rover has been or is to be a participant;
•the amount involved exceeded or exceeds $120,000; and
•any of Rover’s directors, executive officers, or beneficial holders of more than 5% of any class of Rover capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Legacy Rover Relationships and Related Person Transactions Prior to the Merger
Stockholder Lock-Up Agreement
In connection with the Business Combination Agreement, on the Closing, Rover, the Sponsor, certain affiliates of the Sponsor, and certain Legacy Rover stockholders entered into the Stockholder Lock-Up Agreement, pursuant to which they agreed, subject to certain exceptions, not to transfer shares of Class A Common Stock for a period of 6 months after the Closing, provided that, if during such 6 month period the volume weighted average price of Class A Common Stock is greater than or equal to $16.00 over any 20 trading days within any 30 trading day period (“Triggering Event III”), 50% of each applicable holder’s subject to restrictions under the Stockholder Lock-Up Agreement would have been released from such lock-up on the later of (i) Triggering Event III and (ii) the date that is 90 days after the Closing.
The full text of the form of Stockholder Lock-Up Agreement is attached hereto as Exhibit 10.7 and incorporated herein by reference. Option to Permit Net Exercise
On February 10, 2021, the Board approved an amendment to the stock option granted to Aaron Easterly on July 19, 2012 to purchase 1,765,120 shares of Legacy Rover’s common stock to permit Mr. Easterly to satisfy the exercise price and applicable tax withholding obligations by net exercise of the option. As a result of the net exercise of the option by Mr. Easterly on July 30, 2021, Legacy Rover withheld 675,679 shares.
All related person transactions described in this section occurred prior to adoption of the formal, written policy described below, and therefore these transactions were not subject to the approval and review procedures set forth in the policy.
Caravel Relationships and Related Person Transactions Prior to the Merger
Forward Purchase Agreements
In connection with the consummation of the Caravel IPO, Caravel entered into forward purchase agreements with several institutional accredited investors (including an affiliate of the Sponsor), referred to herein as forward purchasers, that provided for, subject to certain conditions, the aggregate purchase of at least $100,000,000 of Caravel Class A Common Stock at $10.00 per share, in a private placement which would close concurrently with the closing of Caravel’s initial business combination with a target operating company. The obligations under the forward purchase agreements were not dependent on whether any shares of Caravel Class A Common Stock would be redeemed by Caravel’s public stockholders. The forward purchasers were not entitled to receive any warrants as part of the forward purchase agreements, which provided for the purchase of shares of the combined company’s common stock with such shares subject to certain transfer restrictions and entitled to certain registration rights. The conditions for purchase were not met at Closing and no shares were sold in the Merger in connection with the forward purchase agreements.
Founder Shares
In September 2020, the Sponsor purchased an aggregate of 7,906,250 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.003 per share. In September and October 2020, the Sponsor transferred 25,000 Founder Shares to each of Messrs. David Kerko, Darren Thompson, Scott Wagner, and Ms. Alexi A. Wellman, Caravel’s independent directors at the time, in each case at the original per share purchase price. In November 2020, the Sponsor cancelled 718,750 Founder Shares and in December 2020, the Sponsor canceled 312,500 Founder Shares, resulting in the Sponsor holding an aggregate of 6,775,000 Founder Shares. The number of Founder Shares issued was determined based on the expectation that the Founder Shares would represent 20% of the outstanding shares of Caravel Common stock upon completion of the Caravel IPO. The Sponsor also subscribed to purchase an aggregate of 5,333,333 of the Private Placement Warrants for a purchase price of $1.50 per warrant, or approximately $8,000,000.
Registration Rights
In December 2020, Caravel entered into a registration rights agreement with respect to the Founder Shares, Private Placement Warrants and warrants to be issued upon conversion of working capital loans, if any, as well as forward purchase shares. Pursuant to the terms of the Registration Rights Agreement, the holders of the Founder Shares, Private Placement Warrants and warrants to be issued upon conversion of working capital loans (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the working capital loans and upon conversion of the Founder Shares) and holders of the forward purchase shares and their permitted transferees were provided with registration rights requiring Caravel to register such securities for resale (in the case of the Founder Shares, only after conversion to shares of Caravel Class A Common Stock).
Stockholder Support Agreements
On February 10, 2021, Rover, the Sponsor, and certain former stockholders of Legacy Rover, entered into the Sponsor Support Agreement, pursuant to which among other things, such parties agreed to approve the Merger. The full text of the Sponsor Support Agreement is attached to the registration statement on Form S-1 of which this prospectus forms a part as Exhibit 10.1 and incorporated herein by reference. Rover Group, Inc. Related Person Transactions
Investor Rights Agreement
In connection with the Closing of the Merger, the Company, the Sponsor, other stockholders holding Founder Shares and certain Legacy Rover stockholders holding Legacy Rover common stock entered into an investor rights agreement (the “Investor Rights Agreement”). The Investor Rights Agreement provided that (i) the Company would register for resale, pursuant to Rule 415 under the Securities Act, certain shares of Class A Common Stock and other equity securities of the Company that are held by the parties thereto from time to time, (ii) in the event that the Company sold Backstop Shares (as defined in the Sponsor Backup Subscription Agreement) with an aggregate purchase price of at least $15 million, the Company would include one individual designated by the Sponsor in the slate of nominees recommended by the Board (or duly constituted committee thereof) for election as directors at each annual meeting of stockholders at which such nominee’s term expires, subject to the Sponsor and its Affiliates (as defined in the Business Combination Agreement, and collectively, the “Sponsor Parties”) beneficially owning a certain minimum number of shares of Class A Common Stock and (iii) the Company would waive the corporate opportunities doctrine with respect to the Sponsor, its affiliates (including portfolio companies), their respective investors and the director nominees of the foregoing.
As we sold Backstop Shares with an aggregate purchase price in excess of $15 million, so long as the Sponsor Parties beneficially own, in the aggregate, at least 3,718,750 shares of Class A Common Stock (as equitably adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares or other like change or transaction with respect to shares of Class A Common Stock)(the “Minimum Ownership Threshold”), we must take all Necessary Action (as defined in the Investor Rights Agreement) so that one individual designated by the Sponsor (the “Sponsor Director”) is included in the slate of
nominees recommended by the Board or duly constituted Board committee for election as directors at each annual meeting at which the Sponsor Director’s term would expire, and must use the level of efforts and provide the same level of support with respect to the election of the Sponsor Director at any such meeting of stockholders as is used and/or provided for the election of the other Rover director nominees at such meeting. The Sponsor can only designate a person to be a Sponsor Director (i) who the Sponsor believes in good faith has the requisite skill and experience to serve as a director of a publicly-traded company and (ii) who is not prohibited from or disqualified from serving as a director pursuant to any rule or regulation of the SEC, Nasdaq or applicable law and (iii) with respect to which no event required to be disclosed pursuant to Item 401(f) of Regulation S-K of the Exchange Act has occurred. Mr. Clammer, a Class III director whose term expires at our 2024 annual meeting, is the current Sponsor Director. Until such time as the Sponsor Parties in the aggregate no longer meet the Minimum Ownership Threshold, the Sponsor has the exclusive right to designate a director for election or appointment, as applicable, to the Board to fill a vacancy created by reason of death, removal or resignation of its nominee to the Board, and we must take all Necessary Action to nominate or cause the Board to appoint, as applicable, a replacement director designated by the Sponsor to fill any such vacancy as promptly as practicable after such designation. Once the Sponsor Parties in the aggregate no longer meet the Minimum Ownership Threshold, the Sponsor must promptly notify us and, if requested by the Board in writing, the Sponsor Parties must take all Necessary Action to cause the Sponsor Director to resign from the Board and any Board committee as soon as practicable and in any event within ten days following the date on which the Sponsor receives such request in writing. Once the Sponsor Parties, in the aggregate, no longer meet the Minimum Ownership Threshold, the Sponsor’s right to designate an individual for nomination for election or appointment under the Investor Rights Agreement will thereafter be of no further force or effect, even if the Sponsor Parties subsequently acquire additional shares of Class A Common Stock. Further, the Sponsor Parties must take all Necessary Action to cause the Sponsor Director to resign from the Board and any Board committee if such Sponsor Director, as determined by the Board in good faith after consultation with outside legal counsel, is (i) prohibited or disqualified from serving as a director or a member of any Board committees under any rule or regulation of the SEC, Nasdaq or by applicable law or (ii) in material violation of our then-current code of ethics.
The full text of the form of Investor Rights Agreement is attached to the registration statement on Form S-1 of which this prospectus forms a part as Exhibit 10.6 and incorporated herein by reference. Compensation Arrangements
Rover is party to employment agreements with Rover’s executive officers that, among other things, provide for certain severance and change of control benefits. Rover has also granted stock options to Rover’s executive officers and Susan Athey, a member of the Board, and restricted stock units to Rover's executive officers and non-employee outside directors. For more information concerning the Company’s executive employment arrangements and equity awards granted to Rover’s executive officers and non-employee directors, see the section titled “Executive Compensation” appearing elsewhere in this prospectus. Policies and Procedures for Related Person Transactions
We have adopted a formal, written policy regarding related person transactions. This written policy regarding related person transactions provides that a related person transaction is a transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships, in which we are a participant and in which a related person has, had or will have a direct or indirect material interest and in which the aggregate amount involved exceeds $120,000. For purposes of this policy, a related person means any of our executive officers and directors (including director nominees), in each case at any time since the beginning of our last fiscal year, or holders of more than 5% of any class of our voting securities and any member of the immediate family of, or person sharing the household with, any of the foregoing persons.
Our audit committee has the primary responsibility for reviewing and approving, ratifying or disapproving related person transactions. In determining whether to approve, ratify or disapprove any such transaction, our audit committee will consider, among other factors, (1) whether the transaction is fair to us and on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (2) the extent of the related person’s interest in the transaction, (3) whether there are business reasons for us to enter into such
transaction, (4) whether the transaction would impair the independence of any of our outside directors and (5) whether the transaction would present an improper conflict of interest for any of our directors or executive officers.
The policy grants standing pre-approval of certain transactions, including (1) certain compensation arrangements for our directors or executive officers, (2) transactions with another company at which a related person’s only relationship is as a non-executive employee, director or beneficial owner of less than 10% of that company’s shares, provided that the aggregate amount involved does not exceed the greater of $200,000 or 5% of such company’s total annual revenues and the transaction is on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (3) charitable contributions by us to a charitable organization, foundation or university at which a related person’s only relationship is as a non-executive employee or director, provided that the aggregate amount involved does not exceed the greater of $200,000 or 5% of such organization’s total annual receipts, (4) transactions where a related person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis and (5) any indemnification or advancement of expenses made pursuant to our organizational documents or any agreement. In addition to our policy, our audit committee charter provides that our audit committee shall review and approve or disapprove any related person transactions.
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages, and positions of our executive officers and directors as of March 4, 2022:
| | | | | | | | | | | | | | |
Name | | Age | | Position |
Executive Officers | | | | |
Aaron Easterly | | 44 | | Chief Executive Officer and Chairperson |
Tracy Knox(1) | | 50 | | Chief Financial Officer |
Brent Turner | | 51 | | President and Chief Operating Officer |
Non-Employee Directors | | | | |
Susan Athey(2) | | 51 | | Director |
Venky Ganesan(3)(4) | | 48 | | Director |
Greg Gottesman(3) | | 52 | | Director |
Scott Jacobson(2) | | 45 | | Director |
Megan Siegler(3)(4) | | 39 | | Director |
Kristina Leslie(2)(4) | | 57 | | Director |
Adam H. Clammer | | 51 | | Director |
________________
(2)Member of the Audit Committee.
(3)Member of the Compensation Committee.
(4)Member of the Nominating and Governance Committee.
Executive Officers
Aaron Easterly has served as our chief executive officer and chairperson of our Board since July 30, 2021. Mr. Easterly has served as Legacy Rover’s chief executive officer and as a member of Legacy Rover’s Board since September 2011. Previously, Mr. Easterly served as entrepreneur in residence at Madrona Venture Group from May 2011 until September 2011 and in various positions, including general manager, advertising strategy and monetization, at Microsoft from 2007 until 2011. Mr. Easterly holds an A.B. in Economics with Honors from Harvard University. We believe Mr. Easterly’s perspective, experience and institutional knowledge as Rover’s co-founder and chief executive officer qualify him to serve on our Board.
Tracy Knox has served as our chief financial officer since July 30, 2021. Ms. Knox has served as Legacy Rover’s chief financial officer since October 2017 and director since July 2021. Previously, Ms. Knox served as chief financial officer of Rightside from 2014 until 2017, as chief financial officer at A Place for Mom from 2013 until 2014, as chief financial officer at UIEvolution from 2011 until 2013, and at drugstore.com from 2003, including as chief finance officer from 2008 until 2011. Ms. Knox holds a B.S. in Accounting from Indiana University and a M.B.A. with Honors from University of Washington.
Brent Turner has served as our chief operating officer since July 30, 2021 and our president and chief operating officer since November 7, 2021. Mr. Turner has served as Legacy Rover’s chief operating officer since January 2014. Previously, Mr. Turner served as president at Code Fellows from 2013 until 2014. Mr. Turner previously served on the board of several companies and as chairperson of the alumni board of directors of Vanderbilt Owen Graduate School of Management. Mr. Turner holds a BSEE in Electrical Engineering from University of Memphis and a M.B.A., Operations, Accounting, Finance from Vanderbilt University – Owen Graduate School of Management.
Board of Directors
Susan Athey has served as a member of our Board since July 30, 2021. Dr. Athey served on the Legacy Rover Board from November 2016 to July 2021. Dr. Athey has served as economics of technology professor at Stanford Graduate School of Business since 2013, including as founder of the Golub Capital Social Impact Lab since 2019. Previously, Dr. Athey served as a professor at Massachusetts Institute of Technology, Stanford University and Harvard University, as a consulting chief economist to Microsoft, and on the National Academies Board of Sciences, Technology, and Economic Policy. Dr. Athey also serves on the board of several other companies, including Ripple Labs, Inc., Expedia Group, Inc. (NASDAQ: EXPE), LendingClub Corporation (NYSE: LC) and Turo Inc.. Dr. Athey holds a B.A. in Economics, Computer Science, and Mathematics from Duke University, a Ph.D. in Economics from Stanford University Graduate School of Business, and an honorary doctorate from Duke University. We believe Dr. Athey’s experience as an educator, researcher, and adviser to technologies companies, in addition to her experience as a director of various companies, qualifies her to serve on our Board.
Venky Ganesan has served as a member of our Board since July 30, 2021. Mr. Ganesan served on the Legacy Rover Board from February 2014 to July 2021. Mr. Ganesan has served as a managing director at Menlo Ventures since March 2013. Previously, Mr. Ganesan served as a managing director at Globespan Capital from 1998 until 2012 and as the chairperson of the National Venture Capital Association from 2016 until 2017. Mr. Ganesan also serves on the board of several other companies, including Abnormal Security, AppDome, MealPal, Dedrone and BitSight Technologies. Mr. Ganesan holds a B.A. in Economics and Math from Reed College and a B.S. in Engineering and Applied Science with a focus on Computer Science from California Institute of Technology. We believe Mr. Ganesan’s experience as a venture capitalist investing in technology companies, in addition to his experience as a director of various companies, qualifies him to serve on our Board.
Greg Gottesman has served as a member of our Board since July 30, 2021. Mr. Gottesman served on the Legacy Rover Board from June 2011 to July 2021. Mr. Gottesman has served as the managing director and co-founder at Pioneer Square Labs since 2015 and as an adjunct faculty member at University of Washington since 2011 teaching entrepreneurship and venture finance. Mr. Gottesman previously served as a managing director at Madrona Venture Group and as co-founder and chief executive officer at Legacy Rover. Mr. Gottesman also serves on the board of several other companies, including LumaTax, NextStep, Kevala, Joon Care, Hola Cash Technologies and Boundless Immigration. Mr. Gottesman holds a B.A. with Honors and Distinction in Political Science from Stanford University, a M.B.A. with Honors and Distinction from Harvard Business School, and a J.D. cum laude from Harvard Law School where he served as editor of the Harvard Law Review. We believe Mr. Gottesman’s experience as a venture capitalist investing in technology companies, in addition to his experience as an educator and as a director of various companies, qualifies him to serve on our Board.
Scott Jacobson has served as a member of our Board since July 30, 2021. Mr. Jacobson served on the Legacy Rover Board from October 2017 to July 2021. Mr. Jacobson has served as a managing director at Madrona Venture Group since 2007. Previously, Mr. Jacobson served in senior product and business management positions in the Amazon Kindle and Amazon Marketplace groups at Amazon.com from 2003 until 2007. Mr. Jacobson holds a B.A. in Applied Mathematics and Economics from Northwestern University and a M.B.A. from Stanford Graduate School of Business, where he was an Arjay Miller Scholar. We believe Mr. Jacobson’s experience as a venture capitalist investing in technology companies, in addition to his leadership experience in technology product development, qualifies him to serve on our Board.
Megan Siegler has served as the Lead Independent Director of our Board since July 30, 2021. Ms. Siegler served on the Legacy Rover Board from July 2017 to July 2021. Ms. Siegler has served as Chief Operating Officer at Niantic since 2020 and on the board of Niantic since 2017. Previously, Ms. Siegler served as managing partner at Spark Capital from 2015 to 2020, as a partner at Kleiner Perkins Caufield & Byers from 2012 until 2015, as the director of products at Square from 2011 until 2012, and in various leadership positions in marketing, business development and product management at Google from 2004 until 2011. Ms. Siegler also serves on the board of several other companies, including Pendo.io and Handshake. Ms. Siegler holds a B.A. in Political Science and History from Stanford University. We believe Ms. Siegler’s experience as a venture capitalist investing in technology companies, in addition to her leadership experience at some of the world’s largest technology companies and her experience as a director of various companies, qualifies her to serve on our Board.
Kristina Leslie has served as a member of our Board since July 30, 2021. Ms. Leslie served on the Legacy Rover Board from February 2021 to July 2021. Ms. Leslie is the chairperson of the board of Blue Shield of California. Ms. Leslie has served on Blue Shield’s board since 2013, and as a director, chair of the audit committee and member of the compensation committee for Sunstone Hotel Investors (NYSE: SHO) since April 2021. Ms. Leslie also serves on the board of directors and as chairperson of the audit committee for CVB Financial Corp. (NASDAQ: CVBF) and Justworks, Inc. Previously, she served on the boards of several other public and private companies, including Glassdoor Inc., Orbitz Worldwide, Inc. (NYSE: OWW), Pico Holdings Inc. (NASDAQ: VWTR), Obagi Medical Products (NASDAQ: OMPI), Bare Escentuals Inc. (NASDAQ: BARE) and Methodist Hospital of Southern California. Ms. Leslie previously served as chief financial officer of DreamWorks Animation SKG, Inc. until her retirement in 2007. We believe Ms. Leslie’s experience as a director of various companies and her experience as the chief financial officer of a public company qualifies her to serve on our Board.
Adam H. Clammer has served as a member of our Board since inception. Mr. Clammer is a Founding Partner of True Wind Capital, a private equity fund manager focused on the technology industry. Prior to founding True Wind Capital in 2015, Mr. Clammer was with KKR, a global investment manager, which he joined in 1995. At KKR, Mr. Clammer co-founded and led the Global Technology Group. Mr. Clammer was the chief executive officer, president and a director of Nebula Caravel Acquisition Corp., our legal predecessor company, from September 2020 to July 2021. He served on public company boards as a director of AEP Industries (NASDAQ: AEPI), Zhone Technologies (NASDAQ: ZHNE), MedCath (NASDAQ: MDTH), Jazz Pharmaceuticals (NASDAQ: JAZZ), Avago, now Broadcom (NASDAQ: AVGO), NXP (NASDAQ: NXPI), Eastman Kodak (NYSE: KODK) Nebula Acquisition Corporation (NASDAQ: NEBU) and TWC Tech Holdings II Corp. (NASDAQ: TWCT). Mr. Clammer served on several private company boards including, among others, Aricent, GoDaddy and TASC. Mr. Clammer currently serves as Chairman of the Board of LeadVenture and as a director of Open Lending (NASDAQ: LPRO) and Cellebrite DI Ltd. (NASDAQ: CLBT). Prior to joining KKR, Mr. Clammer worked in the Mergers & Acquisitions group at Morgan Stanley from 1992 to 1995. He holds a B.S. in Business Administration from the University of California, Berkeley and an M.B.A. from Harvard Business School, where he was a Baker Scholar. We believe Mr. Clammer’s experience as a private equity investor investing in companies in various industries, in addition to his experience in publicly-listed companies, qualifies him to serve on our Board.
Mr. Clammer was nominated to Rover’s Board by the Sponsor to serve as a Class III director pursuant to the terms of the Business Combination Agreement. As discussed in more detail under “Certain Relationships and Related Party Transactions—Rover Group, Inc. Related Person Transactions—Investor Rights Agreement,” pursuant to the Investor Rights Agreement, we must include one individual designated by the Sponsor in the slate of nominees recommended by the Board (or duly constituted Board committee) for election as directors at each annual meeting of stockholders at which Mr. Clammer’s term expires, subject to the Sponsor Parties beneficially owning at least 3,718,750 shares of our Class A Common Stock. Family Relationships
There are no family relationships among any of the executive officers or directors of the Company.
Code of Business Conduct and Ethics
The Board has adopted a code of business conduct and ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, as well as our contractors, consultants and agents.
Board of Directors
Rover’s business and affairs are managed under the direction of the Board. The Board consists of eight (8) directors. The number of directors are fixed by the Board, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws. Each of our directors will continue to serve as a director until the election and qualification of his or her successor, or until his or her earlier death, resignation or removal.
Classified Board of Directors
We adopted the amended and restated certificate of incorporation (the “Charter”) on July 30, 2021. Our Charter provides that the Board is divided into three classes with staggered three-year terms. Only one class of directors is elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors are divided among the three classes as follows:
•the Class I directors are Aaron Easterly and Venky Ganesan, and their terms will expire at our 2022 annual meeting of stockholders;
•the Class II directors are Scott Jacobson, Greg Gottesman and Susan Athey, and their terms will expire at our 2023 annual meeting of stockholders; and
•the Class III directors are Adam Clammer, the Sponsor Director designated by Sponsor pursuant to the Investor Rights Agreement, Kristina Leslie and Megan Siegler, and their terms will expire at our 2024 annual meeting of stockholders.
Director Independence
The Board has determined that Ms. Athey, Mr. Gottesman, Ms. Siegler, Mr. Jacobson, Mr. Ganesan, Ms. Leslie, and Mr. Clammer, representing seven (7) of our eight (8) directors, do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under the listing standards of Nasdaq. In making these determinations, the Board considered the current and prior relationships that each non-employee director has with us as well as other facts and circumstances that the Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the nature of and degree to which they were involved in Company transactions.
Audit Committee
Our audit committee consists of Kristina Leslie, Susan Athey and Scott Jacobson. Our Board has determined that each of the members of the audit committee meet the requirements for independence under the rules and regulations of the SEC and the listing standards of Nasdaq applicable to audit committee members and also meet the financial literacy requirements of the listing standards of Nasdaq.
Kristina Leslie serves as the chair of the audit committee. Our Board has determined that Ms. Leslie qualifies as an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. In making this determination, our Board considered Ms. Leslie’s formal education and previous experience in financial roles. Both our independent registered public accounting firm and management will periodically meet privately with our audit committee.
Our audit committee is responsible for the following duties, among others:
•select, retain, compensate, evaluate, oversee and, where appropriate, terminate and replace our independent registered public accounting firm;
•review and approve the scope and plans for the audits and the audit fees and approve all non-audit and tax services to be performed by the independent auditor;
•evaluate the independence and qualifications of our independent registered public accounting firm;
•review our financial statements, and discuss with management and our independent registered public accounting firm the results of the annual audit and the quarterly reviews;
•review and discuss with management and our independent registered public accounting firm the quality and adequacy of our internal controls and our disclosure controls and procedures;
•discuss with management our procedures regarding the presentation of our financial information, and review earnings press releases and guidance;
•oversee the design, implementation and performance of our internal audit function, if any;
•set hiring policies with regard to the hiring of employees and former employees of our independent registered public accounting firm and oversee compliance with such policies;
•review, approve and monitor and review conflicts of interest of our board members and officers and related party transactions;
•adopt and oversee procedures to address complaints regarding accounting, internal accounting controls or auditing matters, or fraud, including confidential, anonymous submissions by our employees of concerns regarding questionable accounting or auditing matters;
•review and discuss with management and our independent registered public accounting firm the adequacy and effectiveness of our legal, regulatory and ethical compliance programs;
•review and discuss with management and our independent registered public accounting firm our guidelines and policies to identify, monitor and address enterprise risks;
•review and discuss with management our major financial risk exposures, including steps taken to control and monitor such risks; and
•review and discuss with management our major information security risk exposures, including steps taken to control and monitor such risks.
Compensation Committee
Our compensation committee consists of Greg Gottesman, Megan Siegler and Venky Ganesan, with Greg Gottesman serving as chairperson. Our Board has determined that each member of the compensation committee meets the requirements for independence under the rules and regulations of the SEC and the listing standards of Nasdaq applicable to compensation committee members, and that each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act.
Our compensation committee is responsible for the following duties, among other things:
•review and approve the compensation for our executive officers, including our chief executive officer;
•review our succession planning process for executive officers other than the chief executive officer, and assist in evaluating potential successors to executive officers other than the chief executive officer;
•review, approve and administer our employee benefit and equity incentive plans;
•establish and review the compensation plans and programs of our employees, and ensure that they are consistent with our general compensation strategy;
•monitor compliance with any stock ownership guidelines;
•approve or make recommendations to our Board regarding the creation or revision of any clawback policy; and
•determine non-employee director compensation.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Megan Siegler, Kristina Leslie and Venky Ganesan, with Megan Siegler serving as chairperson. Our Board has determined that our nominating and corporate governance committee meets the requirements for independence under the listing standards of Nasdaq.
Our nominating and corporate governance committee is responsible for the following duties, among other things:
•review and assess and make recommendations to the Board regarding desired qualifications, expertise and characteristics sought of board members;
•identify, evaluate, select or make recommendations to the Board regarding nominees for election to the Board;
•develop policies and procedures for considering stockholder nominees for election to the Board;
•review our succession planning process for our chief executive officer, and assist in evaluating potential successors to the chief executive officer;
•review and make recommendations to the Board regarding the composition, organization and governance of the Board and its committees;
•review and make recommendations to the Board regarding our corporate governance guidelines and corporate governance framework;
•oversee director orientation for new directors and continuing education for our directors;
•oversee the evaluation of the performance of the Board and its committees;
•review and monitor compliance with our code of business conduct and ethics; and
•administer policies and procedures for communications with the non-management members of the Board.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee identified above under “—Compensation Committee” has ever been an executive officer or employee of Rover Group, Inc. Mr. Gottesman was previously co-founder and chief executive officer of Legacy Rover from incorporation until September 2011. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers that serve on our Board or compensation committee.
EXECUTIVE COMPENSATION
As an emerging growth company and smaller reporting company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for our principal executive officer and our two other most highly compensated executive officers. This section discusses the material components of the executive compensation program offered to our executive officers who would have been “named executive officers” for the years ended December 31, 2021 and 2020. Such executive officers consist of the following persons, referred to herein as our named executive officers:
•Aaron Easterly, our Chief Executive Officer;
•Tracy Knox, our Chief Financial Officer; and
•Brent Turner, our President and Chief Operating Officer.
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt could vary significantly from our historical practices and currently planned programs summarized in this discussion. As used in this section, “Rover,” the “Company,” “we,” “us” and “our” refers to Legacy Rover prior to the Closing and Rover after the Closing. Upon the Closing, the executive officers of Legacy Rover became the executive officers of Rover.
Summary Compensation Table
The following table sets forth information regarding the total compensation awarded to, earned by or paid to our named executive officers for the fiscal years ended December 31, 2021 and December 31, 2020. The number of shares subject to each option award and, where applicable, the per share incremental fair value change related to the amendment to the exercise price of certain options, reflect changes as a result of our capitalization adjustments in connection with the Merger.
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Name and Principal Position | |
Year | | Salary ($) | | Bonus ($) | | Non-Equity Incentive Plan Compensation ($)(1) | Stock Awards ($)(2) | | Option Awards ($)(2) | | All Other Compensation ($)(3) | | Total ($) |
Aaron Easterly | | 2021 | | $ | 423,333 | | | | $ | 43,000 | | | $ | 592,969 | | $ | 5,491,675 | | | | — | | | | $ | 20,126 | | | $ | 6,571,103 | |
Chief Executive Officer | | 2020 | | $ | 263,975 | | (4) | | $ | 96,713 | | | — | | — | | | | $ | 1,437,002 | | (7) | | — | | | $ | 1,797,690 | |
Tracy Knox | | 2021 | | $ | 371,000 | | | | $ | 50,000 | | | $ | 414,844 | | $ | 2,211,125 | | | | — | | | | $ | 8,418 | | | $ | 3,055,387 | |
Chief Financial Officer | | 2020 | | $ | 307,608 | | (5) | | $ | 95,055 | | | — | | — | | | | $ | 315,244 | | (8) | | — | | | $ | 717,907 | |
Brent Turner | | 2021 | | $ | 415,000 | | | | $ | 35,000 | | | $ | 504,258 | | $ | 2,750,491 | | (10) | | — | | | | $ | 9,801 | | | $ | 3,714,550 | |
Chief Operating Officer and President | | 2020 | | $ | 374,084 | | (6) | | $ | 120,500 | | | — | | — | | | | $ | 347,712 | | (9) | | — | | | $ | 842,296 | |
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(1)The amount earned in 2021 represents incentive bonuses earned in 2021 and paid in August 2021 and March 2022 pursuant to the terms and conditions of our Executive 2021 Bonus Plan, as described in the section titled “—Executive 2021 Bonus Plan.”
(2)The amounts in this column represent the aggregate grant date fair value of restricted stock unit awards and option awards granted to each named executive officer, computed in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. See Note 15—Stock-Based Compensation to the audited consolidated financial statements appearing for a discussion of the assumptions made by us in determining the grant-date fair value of our equity awards. (3)Includes, for 2021, (i) with respect to Mr. Easterly, Rover-provided 401k matching contributions that commenced in August 2021 in the aggregate amount of $6,500, holiday gifts and related reimbursements provided to all Rover employees with a fair market value of $285, and Rover-paid incremental offering expenses (other than underwriting discounts and commissions) associated with Mr. Easterly’s inclusion in a resale registration statement filed by Rover and Rover’s secondary offering in November 2021 in the aggregate amount of $13,317; (ii) with respect to Ms. Knox, Rover-provided 401k matching contributions that commenced in August 2021 in the aggregate amount of $6,500, holiday gifts and related reimbursements provided to all Rover employees with a fair market value of $285, and Rover-paid incremental offering
expenses (other than underwriting discounts and commissions) associated with Ms. Knox’s inclusion in Rover’s secondary offering in November 2021 in the aggregate amount of $1,608; and (iii) with respect to Mr. Turner, Rover-provided 401k matching contributions that commenced in August 2021 in the aggregate amount of $5,200, holiday gifts and related reimbursements provided to all Rover employees with a fair market value of $285, and Rover-paid incremental offering expenses (other than underwriting discounts and commissions) associated with Mr. Turner’s inclusion in Rover’s secondary offering in November 2021 in the aggregate amount of $4,291.
(4)This amount reflects a period of 118 days when Mr. Easterly’s annualized salary rate was reduced to $1.
(5)This amount reflects a period of 182 days when Ms. Knox’s annualized salary rate was reduced to 85%.
(6)This amount reflects a period of 182 days when Mr. Turner’s annualized salary rate was reduced to 85%.
(7)This amount reflects the sum of (i) the grant date fair value of an option to purchase 50,235 shares granted on June 26, 2020, or $51,884.08, (ii) the grant date fair value of an option to purchase 1,225,554 shares granted on June 26, 2020, or $1,184,110.60, (iii) the incremental increase in the fair value of the option to purchase 1,162,281 shares with an incremental fair value change of $0.17 per share arising from the amendment to the exercise price of such option, or $193,616.80, and (iv) the incremental increase in the fair value of the option to purchase 46,703 shares with an incremental fair value change of $0.16 per share arising from the amendment to the exercise price of such option, or $7,391.00.
(8)This amount reflects the sum of (i) the grant date fair value of an option to purchase 20,841 shares granted on June 26, 2020, or $21,351.57, (ii) the grant date fair value of an option to purchase 237,287 shares granted on June 26, 2020, or $227,287.15, (iii) the incremental increase in the fair value of the option to purchase 339,666 shares with an incremental fair value change of $0.17 per share arising from the amendment to the exercise price of such option, or $56,582.80, and (iv) the incremental increase in the fair value of the option to purchase 63,329 shares with an incremental fair value change of $0.16 per share arising from the amendment to the exercise price of such option, or $10,022.12.
(9)This amount reflects the sum of (i) the grant date fair value of an option to purchase 16,508 shares of common stock granted on June 26, 2020, or $17,050.00, (ii) the grant date fair value of an option to purchase 247,623 shares of common stock granted on June 26, 2020, or $237,187.50, (iii) the incremental increase in the fair value of the option to purchase 502,872 shares with an incremental fair value change of $0.17 per share arising from the amendment to the exercise price of such option, or $83,770.20, and (iv) the incremental increase in the fair value of the option to purchase 61,320 shares with an incremental fair value change of $0.16 per share arising from the amendment to the exercise price of such option, or $9,704.25.
(10)This amount reflects the sum of (i) the grant date fair value of an award of restricted stock units covering 24,450 shares granted on November 7, 2021, or $300,491, and (ii) the grant date fair value of an award of restricted stock units covering 200,000 shares granted on November 2, 2021, or $2,450,000.
Outstanding Equity Awards at Fiscal 2021 Year-End
The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2021. The number of shares subject to each option award and, where applicable, the
option exercise price per share, reflect changes as a result of our capitalization adjustments in connection with the Merger.
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| | | Option Awards(1) | | Stock Awards(1) |
Name | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable(2) | | Number of Securities Underlying Unexercised Options (#) Unexercisable(2) | | Equity incentive plan awards: Number of Securities underlying unexercised unearned options (#)(2) | | Option Exercise Price($)(3) | | Option Expiration Date | | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)(4) | | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(5) |
Aaron Easterly | 11/2/21 | | — | | | — | | — | | — | | — | | | — | | | — | | | 364,244 | | (6) | | $ | 3,551,379 | |
Aaron Easterly | 12/17/14 | | 770,632 | | (7) | | — | | | — | | | $ | 0.36 | | | 12/16/24 | | | | | |
Aaron Easterly | 12/20/16 | | 840,401 | | (8) | | — | | | — | | | $ | 1.04 | | | 12/19/26 | | | | | |
Aaron Easterly | 2/23/18 | | 945,482 | | (9) | | 41,107 | | | 41,107 | | | $ | 1.80 | | | 2/22/28 | | | | | |
Aaron Easterly | 6/26/20 | | 558,159 | | (10) | | 717,603 | | | 717,603 | | | $ | 1.99 | | | 6/25/30 | | | | | |
Aaron Easterly | 7/13/20 | | 805,994 | | (11) | | 402,965 | | | 402,965 | | | $ | 1.99 | | | 7/12/30 | | | | | |
Tracy Knox | 11/2/21 | | — | | | | — | | — | | — | | — | | — | | — | | — | | | 146,657 | | (12) | | $ | 1,429,906 | |
Tracy Knox | 11/7/17 | | 317,412 | | (13) | | — | | — | | — | | | $ | 1.80 | | | 11/6/27 | | | | | |
Tracy Knox | 2/23/18 | | 252,127 | | (14) | | 10,962 | | | 10,962 | | | $ | 1.80 | | | 2/22/28 | | | | | |
Tracy Knox | 6/26/20 | | 112,934 | | (15) | | 145,188 | | | 145,188 | | | $ | 1.99 | | | 6/25/30 | | | | | |
Tracy Knox | 7/13/20 | | 268,669 | | (16) | | 134,317 | | | 134,317 | | | $ | 1.99 | | | 7/12/30 | | | | | |
Brent Turner | 11/7/21 | | — | | | | — | | — | | — | | — | | — | | — | | — | | | 24,450 | | (17) | | $ | 238,388 | |
Brent Turner | 11/2/21 | | — | | | | — | | — | | — | | — | | — | | — | | — | | | 162,500 | | (18) | | $ | 1,584,375 | |
Brent Turner | 1/16/14 | | 562,459 | | (19) | | — | | | — | | | $ | 0.21 | | | 1/15/24 | | | | | |
Brent Turner | 12/17/14 | | 504,241 | | (20) | | — | | | — | | | $ | 0.36 | | | 12/16/24 | | | | | |
Brent Turner | 12/20/16 | | 360,172 | | (21) | | — | | | — | | | $ | 1.04 | | | 12/19/26 | | | | | |
Brent Turner | 2/23/18 | | 441,225 | | (22) | | 19,182 | | | 19,182 | | | $ | 1.80 | | | 2/22/28 | | | | | |
Brent Turner | 6/26/20 | | 115,559 | | (23) | | 148,566 | | | 148,566 | | | $ | 1.99 | | | 6/25/30 | | | | | |
Brent Turner | 7/13/20 | | 376,129 | | (24) | | 188,051 | | | 188,051 | | | $ | 1.99 | | | 7/12/30 | | | | | |
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(1)These equity awards are eligible for accelerated vesting in the event the named executive officer’s employment is terminated in a qualifying termination in connection with a change in control. The acceleration rights are described below under “—Potential Payments upon Termination or Change in Control.”
(2)All stock options were granted pursuant to the 2011 Plan.
(3)This column represents the fair market value of a share of common stock on the date of the grant, as determined by our Board.
(4)All of these restricted stock unit awards (“RSUs”) were granted pursuant to the 2021 Plan.
(5)Calculated by multiplying the closing market price of our Class A Common Stock at December 31, 2021 ($9.75 per share) by the number of unvested RSUs at December 31, 2021 as indicated in the prior column.
(6)1/16th of the 448,300 total shares originally granted pursuant to this RSU award vested on March 1, 2022 and 1/16th shall vest on the first of the month every three months thereafter, subject to Mr. Easterly’s continued service through each vesting date.
(7)These stock options vested by December 11, 2018.
(8)These stock options vested by December 16, 2020.
(9)1/48th of the total shares subject to the option vest monthly from February 15, 2018, subject to Mr. Easterly’s continued service through each vesting date.
(10)1/48th of the total number of shares subject to the option vest monthly from March 1, 2020, subject to Mr. Easterly’s continued service through each vesting date.
(11)1/48th of the total number of shares subject to the option vest monthly from April 1, 2019, subject to Mr. Easterly’s continued service through each vesting date.
(12)1/16th of the 180,500 total shares originally granted pursuant to this RSU award vested on March 1, 2022 and 1/16th shall vest on the first of the month every three months thereafter, subject to Ms. Knox’s continued service through each vesting date.
(13)These stock options vested by October 31, 2021.
(14)7/48th of the shares subject to the option vested on October 17, 2018 and 1/48th of the total shares subject to the option vest monthly on the 15th day of the month thereafter, subject to Ms. Knox’s continued service through each vesting date.
(15)1/48th of the total number of shares subject to the option vest monthly from March 1, 2020, subject to Ms. Knox’s continued service through each vesting date.
(16)1/48th of the total number of shares subject to the option vest monthly from April 1, 2019, subject to Ms. Knox’s continued service through each vesting date.
(17)100% of the total shares subject to this RSU award fully vested on March 1, 2022.
(18)1/16th of the 200,000 total shares originally granted pursuant to this RSU award vested on March 1, 2022 and 1/16th shall vest on the first of the month every three months thereafter, subject to Mr. Turner’s continued service through each vesting date.
(19)These stock options vested by January 13, 2018.
(20)These stock options vested by December 11, 2018.
(21)These stock options vested by December 16, 2020.
(22)1/48th of the total number of shares subject to the option vest monthly from February 15, 2018, subject to Mr. Turner’s continued service through each vesting date.
(23)1/48th of the total number of shares subject to the option vest monthly from March 1, 2020, subject to Mr. Turner’s continued service through each vesting date.
(24)1/48th of the total number of shares subject to the option vest monthly from April 1, 2019, subject to Mr. Turner’s continued service through each vesting date.
Narrative Disclosure to Summary Compensation Table
Named Executive Officer Employment Arrangements
We have entered into written offer letters setting forth the terms and conditions of employment for each of our named executive officers, as described below. These agreements provide for at-will employment. In addition, each of our named executive officers has executed our standard form of confidential information, invention assignment and arbitration agreement.
Aaron Easterly
We entered into an employment agreement with Mr. Easterly, our chief executive officer, in September 2011, which was amended in March 2012. Mr. Easterly’s employment agreement provides for an annual base salary, eligibility to receive an annual target bonus, and eligibility to participate in employee benefit or group insurance plans maintained from time to time by us. Mr. Easterly’s current base annual salary is $478,000 and his annual target bonus is 100% of his base annual salary.
Under the terms of Mr. Easterly’s employment agreement, if Mr. Easterly’s employment is Involuntarily Terminated (as defined in Mr. Easterly’s employment agreement) in connection with or within 12 months after a Change in Control (as defined in Mr. Easterly’s employment agreement), then 100% of the then unvested and outstanding Rover equity awards held by Mr. Easterly shall immediately vest. In addition, upon a Change in Control, any unvested and outstanding Rover equity awards held by Mr. Easterly that have a vesting date that would otherwise occur more than 12 months after the Change in Control will instead vest in equal quarterly installments over the following 12 months and be fully vested on the first anniversary of the closing of the Change in Control, subject to Mr. Easterly’s continued service. Finally, any unvested and outstanding Rover equity award held by Mr. Easterly that would be set to terminate in connection with a Change in Control will vest in full prior to such termination.
Tracy Knox
We entered into an employment agreement with Ms. Knox, our chief financial officer, in September 2017. Ms. Knox’s employment agreement, which was superseded by the Employment and Transition Agreement discussed below, provided for an annual base salary, eligibility to receive an annual target bonus, and eligibility to participate in employee benefit or group insurance plans maintained from time to time by us. Ms. Knox’s current base annual salary is $400,000 and her annual target bonus is 66% of Ms. Knox’s base annual salary.
In connection with Ms. Knox’s planned retirement, we entered into an Employment and Transition Agreement (the “Transition Agreement”), dated as of March 4, 2022, with Ms. Knox. Subject to earlier separation of her at-will
employment, the Transition Agreement provides that Ms. Knox will continue to serve as our Chief Financial Officer through September 1, 2022 (the “Succession Date”) and will remain employed at-will as an advisor to the Company through December 31, 2022 (the “Planned Separation Date”). The Transition Agreement supersedes the prior employment arrangements with Ms. Knox. From the Succession Date through her separation from employment (the “Transition Period”), Ms. Knox will remain employed at her current full-time salary and benefits for purposes of assisting with the transition of her duties to a successor Chief Financial Officer.
If Ms. Knox remains employed through the Planned Separation Date, and only to the extent we pay discretionary bonuses to bonus-eligible employees in respect of fiscal year 2022, Ms. Knox will be entitled to the full bonus that would have been allocated to her had she remained employed through the date such bonuses are paid (but without any performance multipliers) (such discretionary bonus with respect to fiscal year 2022, whether the full bonus or prorated, the “Bonus Payment”); provided that any such Bonus Payment will be paid no later than March 15, 2023.
If we terminate Ms. Knox’s employment other than for Cause (as defined in the Transition Agreement) during the Transition Period, Ms. Knox will be entitled to the following (the “Severance”):
•Ms. Knox will be entitled to a lump sum severance payment equal to the portion of her annual salary that would have been payable for the remaining portion of the Transition Period; and
•To the extent we pay discretionary bonuses to bonus-eligible employees in respect of fiscal year 2022, Ms. Knox will be entitled to a portion of the bonus that would have been allocated to her had she remained employed through the date such bonuses are paid (but without any performance multipliers), prorated based on the number of days Ms. Knox was employed in fiscal year 2022; provided that any such bonus will be paid no later than March 15, 2023.
To receive the Severance or the Bonus Payment, Ms. Knox must sign and not revoke a release of claims in favor of the Company.
If, prior to the Planned Separation Date, Ms. Knox resigns or the Company terminates her employment for Cause, she will not be entitled to the Severance or the Bonus Payment.
Ms. Knox will vest in her outstanding equity awards through the date of her separation from employment, which equity awards will continue to be governed by the terms and conditions of the applicable equity incentive plans and award agreements, including any accelerated vesting provisions therein.
The foregoing description of the Transition Agreement is qualified in its entirety by the full text of the Transition Agreement, which is attached hereto as Exhibit 10.20 and is incorporated herein by reference. Brent Turner
We entered into an offer letter with Mr. Turner, our president and chief operating officer, in January 2014. Mr. Turner’s offer letter provides for an annual base salary and eligibility to participate in employee benefit or group insurance plans maintained from time to time by us. Mr. Turner’s current base annual salary is $437,000 and his annual target bonus is 65% of his base annual salary.
Executive 2021 Bonus Plan
In July 2021, the compensation committee of our board of directors adopted a bonus plan for our employees, including our named executive officers, for calendar year 2021, which we refer to as the Executive 2021 Bonus Plan. The Executive 2021 Bonus Plan is a sub plan under our Employee Incentive Compensation Plan. Each of our named executive officers was a participant in the Executive 2021 Bonus Plan. The Executive 2021 Bonus Plan provided for non-equity incentive compensation based upon the combined achievement of corporate performance goals over calendar year 2021, subject to a personal payout multiplier based on individual performance. Bonuses under the Executive 2021 Bonus Plan are bifurcated, with 25% of target bonus payments payable with respect to the first six month period of 2021 based on the degree of achievement of the applicable performance goals at the end of such six month period, and 75% of target bonus payments payable following the second six month period of 2021
based on the degree of achievement of the applicable performance goals for all of 2021 subject to a multiplier based on individual performance (with bonuses payable with respect to the first six month period of 2021 subject to true up in the first quarter of 2022 for the applicable individual performance multiplier and overall attainment of corporate performance goals).
Under the Executive 2021 Bonus Plan, bonus payments are determined by (i) multiplying each participant’s target bonus for the applicable performance period by a factor (the “bonus funding percentage”) determined by achievement of the combined corporate performance goals for the applicable performance period (such resulting amount, the “corporate bonus amount”), and (ii) multiplying each participant’s resulting corporate bonus amount by a personal payout multiplier based on individual performance (the “individual performance multiplier”).
The achievement of the corporate performance goals, which we refer to as the bonus funding percentage, is based on the achievement of target goals related to annual revenue and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) excluding bonus expense:
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA excluding bonus expense | Revenue |
| 82% Target Annual Revenue or less | 86% Target Annual Revenue | 90% Target Annual Revenue | 100% Target Annual Revenue | 110% Target Annual Revenue or greater |
55% Target Adjusted EBITDA | 0 | % | 0 | % | 0 | % | 0 | % | 110 | % |
85% Target Adjusted EBITDA | 0 | % | 0 | % | 0 | % | 35 | % | 120 | % |
100% Target Adjusted EBITDA | 0 | % | 45 | % | 90 | % | 100 | % | 130 | % |
130% Target Adjusted EBITDA | 0 | % | 50 | % | 95 | % | 110 | % | 140 | % |
160%Target Adjusted EBITDA | 0 | % | 60 | % | 100 | % | 120 | % | 150 | % |
The bonus funding percentage scaled linearly between applicable target goals, provided that the bonus funding percentage was subject to a ceiling of 100% if the annual revenue did not reach 100% of the target.
The achievement of the individual performance goals, which we refer to as the individual multiplier, scales from 0% to 150% depending on our assessment of individual performance.
In August 2021, our compensation committee reviewed achievement of the corporate performance goals for the first six month period of calendar year 2021. As we were on pace to achieve corporate performance goals for the entirety of calendar year 2021, we assumed 100% payouts and our compensation committee approved 25% of the target bonus payment. Accordingly, we paid bonuses under the 2021 Executive Bonus Plan to Mr. Easterly, Ms. Knox and Mr. Turner in August 2021 in the amounts of $78,125, $45,250 and $66,625, respectively.
In March 2022, our compensation committee reviewed achievement of the corporate performance goals for the entirety of calendar year 2021, and approved a bonus funding percentage of 150%. The compensation committee also reviewed achievement of individual performance goals, and approved individual multipliers for Mr. Easterly, Ms. Knox and Mr. Turner of 125%, 150% and 125%, respectively. Accordingly, we paid bonuses under the 2021 Executive Bonus Plan to Mr. Easterly, Ms. Knox and Mr. Turner in March 2022 in the amounts of $514,844, $369,594 and $437,633, respectively.
2022 RSU Grants
On March 3, 2022, the compensation committee approved under the 2021 Equity Incentive Plan refresh grants of 714,846 RSUs to Mr. Easterly, 225,908 RSUs to Ms. Knox, and 549,987 RSUs to Mr. Turner. On June 1, 2022, 1/16th of each named executive officer’s new RSU grants will vest, and 1/16th shall vest on the first of the month every three months thereafter, subject to the applicable named executive officer’s continued service.
Potential Payments upon Termination or Change of Control
Mr. Easterly may receive certain equity award acceleration benefits in connection with a change of control or his involuntary termination following a change of control pursuant to his employment agreement with us and the equity award agreements underlying each of his outstanding and unvested Rover stock options and restricted stock unit awards. See section titled “Named Executive Officer Employment Arrangements” above. Ms. Knox’s equity award agreements underlying each of her outstanding and unvested Rover equity awards generally provide that if Ms. Knox’s employment is Involuntarily Terminated (as defined in the applicable award agreement) in connection with or within 12 months after a Change in Control (as defined in the applicable equity plan under which the award was granted), then 100% of the then unvested and outstanding shares subject to such award will immediately vest.
Mr. Turner’s equity award agreements underlying each of his outstanding and unvested Rover equity awards generally provide that if Mr. Turner’s employment is Involuntarily Terminated (as defined in the applicable award agreement) in connection with or within 12 months after a Change in Control (as defined in the applicable equity plan under which the award was granted), then 100% of the then unvested and outstanding shares subject to such award will immediately vest.
Employee Benefit and Stock Plans
2021 Equity Incentive Plan
The Rover 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the stockholders in connection with the Merger and became effective upon the Closing of the Merger. The 2021 Plan replaced the Rover 2011 Equity Incentive Plan, as amended (the “2011 Plan”), which expired as to future grants as of the effective date of the Merger.
Summary of the 2021 Plan
The following paragraphs provide a summary of the principal features of the 2021 Plan and its operation. However, this summary is not a complete description of all of the provisions of the 2021 Plan and is qualified in its entirety by the specific language of the 2021 Plan.
Purposes of the 2021 Plan
The purposes of the 2021 Plan are to attract and retain personnel for positions with Rover, any parent or subsidiary, and any entity that is in control of, is controlled by or is under common control with Rover; to provide additional incentive to employees, directors, and consultants; and to promote the success of Rover’s business. These incentives will be provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and performance awards as the administrator of the 2021 Plan may determine.
Eligibility
The 2021 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants. As of December 31, 2021, we had seven (7) non-employee directors and approximately 372 employees (including employee directors).
Authorized Shares
Subject to the adjustment provisions contained in the 2021 Plan and the evergreen provision described below, the maximum number of shares of Class A Common Stock that may be issued pursuant to awards under the 2021 Plan is (i) 17,200,000 shares of Class A Common Stock, plus (ii) any shares of Class A Common Stock subject to stock options other awards that were assumed in the Merger and expire or otherwise terminate without having been exercised in full, are tendered to or withheld by us for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by us due to failure to vest, with the maximum number of shares to be added to the 2021 Plan pursuant to clause (ii) equal to 20,413,459 shares of Class A Common Stock. The 2021 Plan also includes an evergreen provision that provides for an automatic annual increase to the number of shares of Class A Common Stock available for issuance under the 2021 Plan on the first day of each fiscal year beginning with the 2022 fiscal year, equal to the least of:
•25,740,000 shares of Class A Common Stock;
•5% of the total number of shares of all classes of Class A Common Stock as of the last day of our immediately preceding fiscal year; and
•such lesser amount determined by the administrator.
On November 2, 2021, the compensation committee determined not to increase the number of shares of Class A Common Stock available for issuance under the 2021 Plan for the 2022 fiscal year.
The 2021 Plan provides that the evergreen provision will operate only until the tenth (10th) anniversary of the earlier of the Board or stockholder approval of the 2021 Plan.
Generally, if an award expires or becomes unexercisable without having been exercised in full, is surrendered under an exchange program described below, or, with respect to restricted stock, restricted stock units or performance awards, is forfeited to or reacquired by us due to the failure to vest, the unpurchased shares (or for awards other than options or stock appreciation rights, the forfeited or repurchased shares) that were subject to such awards will become available for future grant or sale under the 2021 Plan (unless it has terminated). With respect to stock appreciation rights, only shares actually issued will cease to be available. Shares that actually have been issued under the 2021 Plan under any award will not be returned to the 2021 Plan and will not become available for future distribution under the 2021 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award will become available for future grant or sale. To the extent an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance.
If any extraordinary dividend or other extraordinary distribution (whether in cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of shares or other securities of Rover, other change in our corporate structure affecting the shares, or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any of its successors) affecting the shares occurs (including a change in control of Rover), the administrator, to prevent diminution or enlargement of the benefits or potential benefits intended to be provided under the 2021 Plan, will adjust the number and class of shares that may be delivered under the 2021 Plan and/or the number, class, and price of shares covered by each outstanding award, and the numerical share limits contained in the 2021 Plan.
Plan Administration
The Board or a committee appointed by the Board may administer the 2021 Plan and are referred to as the administrator. Different administrators may administer the 2021 Plan with respect to different groups of service providers. The Board may retain the authority to concurrently administer the 2021 Plan and revoke the delegation of some or all authority previously delegated.
Subject to the terms of the 2021 Plan and applicable laws, the administrator generally has the power, in its sole discretion, to make any determinations and perform any actions deemed necessary or advisable for administering the
2021 Plan. The administrator will have the power to administer the 2021 Plan, including but not limited to the power to construe and interpret the 2021 Plan and awards granted under the 2021 Plan, and determine the terms of awards, including but not limited to the exercise price (if any), the number of shares of Class A Common Stock subject to each award, the time when awards may vest or be exercised (including the ability to accelerate the vesting and exercisability of awards), and the form of consideration payable upon exercise, if applicable. The administrator may select the service providers to whom awards may be granted and approve forms of awards agreements under the 2021 Plan. The administrator has the authority to amend awards (including but not limited to the discretionary authority to extend the post-termination exercisability period of awards and to extend the maximum term of an option) and to temporarily suspend the exercisability of an award if the administrator deems such suspension to be necessary or appropriate for administrative purposes, subject to the provisions of the 2021 Plan. The administrator may institute and determine the terms and conditions of an exchange program under which (i) outstanding awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) participants have the opportunity to transfer any outstanding awards to a financial institution or other person or entity selected by the administrator, and/or (iii) the exercise price of an outstanding award is increased or reduced. Unless a participant is on an approved leave of absence, the administrator will have sole discretion to determine the date on which a participant stops actively providing services to us. The administrator’s decisions, determinations, and interpretations are final and binding on all participants and any other holders of awards.
Stock Options
Options may be granted under the 2021 Plan. Subject to the provisions of the 2021 Plan, the administrator will determine the terms and conditions of options, including when such options vest and become exercisable (and the administrator will have the discretion to accelerate the time at which such options will vest or become exercisable). The per share exercise price of any option generally must be at least 100% of the fair market value of a share on the date of grant, and the term of an incentive stock option may not be more than 10 years. However, with respect to any incentive stock option granted to an individual who owns 10% of the voting power of all classes of stock of Rover or any of its parent or subsidiary corporations, the term of such option must not exceed 5 years, and the per share exercise price of such incentive stock option must be at least 110% of the fair market value of a share on the grant date. After a participant’s service terminates, he or she generally may exercise the vested portion of his or her option for the period of time stated in his or her option agreement. In no event may an option be exercised later than the expiration of its term, except in certain circumstances where the expiration occurs during a period where exercise is not permitted under applicable law, as described more fully in the 2021 Plan. Subject to the provisions of the 2021 Plan, the administrator will determine the other terms of options, including but not limited to the acceptable forms of consideration for exercising an option.
Stock Appreciation Rights
Stock appreciation rights may be granted under the 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of Class A Common Stock between the exercise date and the date of grant. Subject to the provisions of the 2021 Plan, the administrator will determine the terms and conditions of stock appreciation rights, including when such rights vest and become exercisable (and the administrator will have the discretion to accelerate the time at which such rights will vest or become exercisable) and whether to pay any increased appreciation in cash, shares, or a combination of both. The per share exercise price of a stock appreciation right must be at least 100% of the fair market value a share on the date of grant with respect to United States taxpayers, and the term of a stock appreciation right will be 10 years. After a participant’s service terminates, he or she generally may exercise the vested portion of his or her stock appreciation right for the period of time stated in his or her option agreement. However, in no event may a stock appreciation right be exercised later than the expiration of its terms, except in certain circumstances where the expiration occurs during a period where exercise is not permitted under applicable law, as described more fully in the 2021 Plan.
Restricted Stock
Restricted stock may be granted under the 2021 Plan. Restricted stock awards are grants of shares that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number
of shares of restricted stock granted to any employee, director or consultant. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us), and the administrator has the discretion to accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting but will not have dividend rights with respect to such shares upon grant without regard to the restriction, unless the administrator provides otherwise. Shares of restricted stock as to which the restrictions have not lapsed are subject to our right of repurchase or forfeiture.
Restricted Stock Units
Restricted stock units may be granted under the 2021 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share. The administrator will determine the terms and conditions of restricted stock units including the vesting criteria (which may include accomplishing specified performance criteria or continued service to us) and the form and timing of payment. The administrator has the discretion to accelerate the time at which any restrictions will lapse or be removed and to settle earned restricted stock units in cash, shares, or a combination of both.
Performance Awards
Performance awards may be granted under the 2021 Plan. Performance awards are awards that will result in a payment to a participant only if objectives established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance objectives in its discretion, which, depending on the extent to which they are met, will determine the value of the payout for the performance awards to be paid out to participants. The administrator has the discretion to reduce or waive any performance objectives or other vesting provisions for performance awards. Performance awards have a threshold, target, and maximum payout value established by the administrator on or before to the grant date. The administrator has the discretion to pay earned performance awards in the form of cash, shares, or in some combination of both.
Non-Employee Directors
The 2021 Plan provides that any non-employee director, in any fiscal year, may not be paid, issued or granted cash retainer fees and equity awards (including awards under the 2021 Plan) with an aggregate value of more than $750,000, increased to $1,000,000 in connection with the non-employee director’s initial service, with the value of each equity award based on its grant date fair value. For purposes of this limitation, the grant date fair value is determined in accordance with U.S. generally accepted accounting principles. Any cash compensation or equity awards granted under the 2021 Plan to a non-employee director for his or her services as an employee, or for his or her services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to our non-employee directors.
Non-Transferability of Awards
Unless the administrator provides otherwise, the 2021 Plan generally does not allow for the transfer or disposal of awards and only the recipient of an award may exercise an award during his or her lifetime. Any unauthorized transfer will be void.
Dissolution or Liquidation
If there is a proposed liquidation or dissolution of Rover, the administrator will notify participants at such time before the effective date of such event as the administrator determines and all awards, to the extent that they have not been previously exercised, will terminate immediately before the consummation of such event.
Merger or Change in Control
The 2021 Plan provides that if there is a merger or a “change in control” (as defined under the 2021 Plan) of Rover, each outstanding award will be treated as the administrator determines (subject to the following paragraph) without a participant’s consent, including that an award be continued by the successor corporation or that vesting of
awards may accelerate automatically upon consummation of the transaction. The administrator will not be required to treat all awards, portions of awards or participants similarly and may modify awards, subject to the provisions of the 2021 Plan.
If the successor corporation does not continue an award (or some portion of such award), the participant will fully vest in (and have the right to exercise) 100% of the then-unvested shares subject to his or her outstanding options and stock appreciation rights, all restrictions on 100% of the participant’s outstanding restricted stock and restricted stock units will lapse, and, regarding 100% of participant’s outstanding awards with performance-based vesting, all performance goals or other vesting criteria will be treated as achieved at 100% of target levels and all other terms and conditions met. In no event will vesting of an award accelerate as to more than 100% of the award. If options or stock appreciation rights are not continued when a change in control or a merger of Rover with or into another corporation or other entity occurs, the administrator will notify the participant in writing or electronically that the participant’s vested options or stock appreciation rights (after considering the foregoing vesting acceleration, if any) will be exercisable for a period of time determined by the administrator in its sole discretion and all of the participant’s options or stock appreciation rights will terminate upon the expiration of such period (whether vested or unvested).
With respect to awards held by a non-employee director, in the event of a change in control, the non-employee director will fully vest in and have the right to exercise his or her options and/or stock appreciation rights, all restrictions on his or her restricted stock and restricted stock units will lapse, and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, unless specifically provided otherwise under the applicable award agreement or other written agreement with the participant.
Forfeiture and Clawback
All awards granted under the 2021 Plan are subject to recoupment under any clawback policy that we are required to adopt under applicable law or listing standards. In addition, the administrator may impose such other clawback, recovery or recoupment provisions in an award agreement as the administrator determines necessary or appropriate, including without limitation to any reacquisition right regarding previously acquired shares or other cash or property. In addition, the administrator may provide in an award agreement that the recipient’s rights, payments, and benefits with respect to such award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an award.
Amendment or Termination
The 2021 Plan became effective upon the Closing of the Merger and will continue in effect until terminated by the administrator, but (i) no incentive stock options may be granted after ten (10) years from the earlier of the Board or stockholder approval of the 2021 Plan and (ii) the 2021 Plan’s automatic share reserve increase (as described above) will operate only until the tenth (10th) anniversary of the earlier of the Board or stockholder approval of the 2021 Plan. In addition, the Board has the authority to amend, suspend, or terminate the 2021 Plan, but such action generally may not materially impair the rights of any participant without his or her written consent.
Summary of U.S. Federal Income Tax Consequences
The following summary is intended only as a general guide to the U.S. federal income tax consequences of participation in the 2021 Plan. The summary is based on existing U.S. laws and regulations as of March 15, 2022, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside. As a result, tax consequences for any particular participant may vary based on individual circumstances.
Incentive Stock Options
A participant recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an option that qualifies as incentive stock option under Section 422 of the Code. If a participant exercises the option and then later sells or otherwise disposes of the shares acquired through the exercise the option after both the two-year anniversary of the date the option was granted and the one-year anniversary of the exercise, the participant will recognize a capital gain or loss equal to the difference between the sale price of the shares and the exercise price, and we will not be entitled to any deduction for federal income tax purposes.
However, if the participant disposes of such shares either on or before the two-year anniversary of the date of grant or on or before the one-year anniversary of the date of exercise (a “disqualifying disposition”), any gain up to the excess of the fair market value of the shares on the date of exercise over the exercise price generally will be taxed as ordinary income, unless the shares are disposed of in a transaction in which the participant would not recognize a gain (such as a gift). Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the participant upon the disqualifying disposition of the shares generally should be deductible by us for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
For purposes of the alternative minimum tax, the difference between the option exercise price and the fair market value of the shares on the exercise date is treated as an adjustment item in computing the participant’s alternative minimum taxable income in the year of exercise. In addition, special alternative minimum tax rules may apply to certain subsequent disqualifying dispositions of the shares or provide certain basis adjustments or tax credits for purposes.
Non-statutory Stock Options
A participant generally recognizes no taxable income as the result of the grant of such an option. However, upon exercising the option, the participant normally recognizes ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of the shares acquired by the exercise of a non-statutory stock option, any gain or loss (based on the difference between the sale price and the fair market value on the exercise date) will be taxed as capital gain or loss. No tax deduction is available to us with respect to the grant of a non-statutory stock option or the sale of the shares acquired through the exercise of the non-statutory stock option.
Stock Appreciation Rights
In general, no taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant generally will recognize ordinary income in an amount equal to the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock Awards
A participant acquiring shares of restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect, pursuant to Section 83(b) of the Code to accelerate the ordinary income tax event to the date of acquisition by filing an election with the IRS no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Restricted Stock Unit Awards
There are no immediate tax consequences of receiving an award of restricted stock units. A participant who is awarded restricted stock units generally will be required to recognize ordinary income in an amount equal to the fair
market value of shares issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the administrator or the participant. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss.
Performance Awards
A participant generally will recognize no income upon the grant of a performance award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any unrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Section 409A
Section 409A of the Code provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 2021 Plan with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
Tax Effect for Rover
We will generally be entitled to a tax deduction in connection with an award under the 2021 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a non-statutory stock option) except to the extent such deduction is limited by applicable provisions of the Code. Special rules limit the deductibility of compensation paid to our chief executive officer and certain “covered employees” as determined under Section 162(m) of the Code and applicable guidance. Under Section 162(m), the annual compensation paid to any of these specified individuals will be deductible only to the extent that it does not exceed $1,000,000.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON PARTICIPANTS AND ROVER WITH RESPECT TO AWARDS UNDER THE 2021 PLAN. IT DOES NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE IMPACT OF EMPLOYMENT OR OTHER TAX REQUIREMENTS, THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH, OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
Number of Awards Granted to Employees, Consultants and Directors
The number of awards that an employee, director, or consultant may receive under the 2021 Plan is in the discretion of the administrator and therefore cannot be determined in advance. We have not previously sponsored an equity incentive plan, and, therefore, the aggregate number of shares of Class A Common Stock which would have been received by or allocated to our named executive officers, executive officers, as a group, directors who are not executive officers, as a group, and all other current employees who are not executive officers, as a group is not determinable.
2021 Employee Stock Purchase Plan
On July 28, 2021, the stockholders approved the Rover 2021 Employee Stock Purchase Plan in connection with the Business Combination Agreement, and it became effective upon the Closing of the Merger.
The 2021 ESPP provides eligible employees an opportunity to purchase shares of Class A Common Stock at a discount through accumulated contributions of their earned compensation. The Board determined that offering an
employee stock purchase plan is important to our ability to compete for talent. The 2021 ESPP will become a significant part of our overall equity compensation strategy (especially with respect to our nonexecutive employees).
The 2021 ESPP’s initial share reserve is 2,600,000 shares of Class A Common Stock. Following the 2021 ESPP’s effectiveness, offering periods will not commence under the ESPP until determined by the Board or the compensation committee.
The Board believes that an employee stock purchase plan will be an important factor in attracting, motivating, and retaining qualified personnel who are essential to our success. The 2021 ESPP provides a significant incentive by allowing employees to purchase shares of Class A Common Stock at a discount.
Summary of the 2021 Employee Stock Purchase Plan
The following paragraphs provide a summary of the principal features of the 2021 ESPP and its operation. However, this summary is not a complete description of all of the provisions of the 2021 ESPP and is qualified in its entirety by the specific language of the 2021 ESPP.
Purpose
The purpose of the 2021 ESPP is to provide our eligible employees with an opportunity to purchase shares of Class A Common Stock through accumulated contributions, which generally will be made through payroll deductions. The 2021 ESPP permits the administrator (as discussed below) to grant purchase rights that qualify for preferential tax treatment under Section 423 of the Code. In addition, the 2021 ESPP authorizes the grant of purchase rights that do not qualify under Section 423 pursuant to rules, procedures or sub-plans adopted by the administrator that are designed to achieve desired tax or other objectives.
Shares Available for Issuance
Subject to adjustment upon certain changes in Rover’s capitalization as described in the 2021 ESPP, the maximum number of shares of Class A Common Stock that will be available for issuance under the 2021 ESPP will be 2,600,000 shares. The shares may be authorized, but unissued, or reacquired Class A Common Stock. The number of shares available for issuance under the 2021 ESPP will be increased on the first day of each fiscal year beginning with the 2022 fiscal year equal to the least of:
•5,150,000 shares of Class A Common Stock;
•1.5% of the total number of shares of all classes of Rover Common Stock as of the last day of our immediately preceding fiscal year; and
•such lesser amount determined by the administrator.
On November 2, 2021, the compensation committee determined not to increase the number of shares of Class A Common Stock available for issuance under the 2021 ESPP for the 2022 fiscal year.
We currently are unable to determine how long this share reserve may last because the number of shares that will be issued in any year or offering period depends on a variety of factors that cannot be predicted with certainty, including, for example, the number of employees who elect to participate in the 2021 ESPP, the level of contributions made by participants and the future price of shares of Class A Common Stock.
Administration
The Board or a committee appointed by the Board will administer the 2021 ESPP and are referred to as the administrator. The administrator has full and exclusive discretionary authority to construe, interpret and apply the terms of the 2021 ESPP, to delegate ministerial duties to any of our employees, to designate separate offerings under the 2021 ESPP, to designate subsidiaries and affiliates as participating in the Section 423 Component and the Non-Section 423 Component, to determine eligibility, to adjudicate all disputed claims filed under the 2021 ESPP and to establish such procedures that it deems necessary or advisable for the administration of the 2021 ESPP. The
administrator is authorized to adopt rules and procedures in order to: determine eligibility to participate, determine the definition of compensation for the purposes of contributions to the 2021 ESPP, handle contributions to the 2021 ESPP, coordinate the making of contributions to the 2021 ESPP, establish bank or trust accounts to hold contributions to the 2021 ESPP, effect the payment of interest, effect the conversion of local currency, satisfy obligations to pay payroll tax, determine beneficiary designation requirements, implement and determine withholding procedures and determine procedures for the handling of stock certificates that vary with applicable local requirements. The administrator also is authorized to determine that, to the extent permitted by applicable law, the terms of a purchase right granted under the 2021 ESPP or an offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the 2021 ESPP or the same offering to employees resident solely in the U.S. Every finding, decision and determination made by the administrator will, to the full extent permitted by law, be final and binding upon all parties.
Eligibility
Generally, all of our employees are eligible to participate so long as they are customarily employed by us or any participating subsidiary or affiliate of us for at least 20 hours per week and more than five months in any calendar year. The administrator, in its discretion, may, prior to an enrollment date, for all options to be granted on such enrollment date in an offering, determine that an employee who (i) has not completed at least two years of service (or a lesser period of time determined by the administrator) since his or her last hire date, (ii) customarily works not more than 20 hours per week (or a lesser period of time determined by the administrator), (iii) customarily works not more than five months per calendar year (or a lesser period of time determined by the administrator), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to disclosure requirements under Section 16(a) of the Exchange Act is or is not eligible to participate in such offering period.
However, an employee may not be granted rights to purchase shares under the 2021 ESPP if such employee:
•immediately after the grant would own capital stock and/or hold outstanding options to purchase such stock possessing 5% or more of the total combined voting power or value of all classes of capital stock of Rover or of any parent or subsidiary of Rover; or
•holds rights to purchase shares under all employee stock purchase plans of Rover or any parent or subsidiary of Rover that accrue at a rate that exceeds $25,000 worth of shares for each calendar year in which such rights are outstanding at any time.
Offering Periods
The 2021 ESPP includes a component that allows us to make offerings intended to qualify under Section 423 of the Code and a component that allows us to make offerings not intended to qualify under Section 423 of the Code to designated companies, as described in the 2021 ESPP. Offering periods begin and end on such dates as may be determined by the administrator in its discretion, in each case on a uniform and nondiscriminatory basis, and may contain one or more purchase periods. The administrator may change the duration of offering periods (including commencement dates) with respect to future offerings so long as such change is announced prior to the scheduled beginning of the first offering period affected. No offering period may last more than 27 months.
Contributions
The ESPP permits participants to purchase shares of Class A Common Stock through contributions (in the form of payroll deductions or otherwise to the extent permitted by the administrator) of up to 20% of their eligible compensation, which includes a participant’s base straight time gross earnings but excludes payments for commissions, incentive compensation, bonuses, payments for overtime and shift premium, equity compensation income and other similar compensation. Unless otherwise determined by the administrator, a participant may not change the rate of his or her contributions during an offering period.
Exercise of Purchase Right
Amounts contributed and accumulated by the participant are used to purchase shares of Class A Common Stock at the end of each purchase period. A participant may purchase a maximum number of shares of during a purchase period as determined by the administrator in its discretion and on a uniform and nondiscriminatory basis. The purchase price of the shares is 85% of the lower of the fair market value of Class A Common Stock on the first trading day of the offering period or on the exercise date, which is generally the last trading day of a purchase period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with us.
Termination of Participation
Participation in the 2021 ESPP generally terminates when a participating employee’s employment with us or a designated company ceases for any reason, the employee withdraws from the 2021 ESPP or we terminate or amend the 2021 ESPP such that the employee is no longer eligible to participate. An employee may withdraw his or her participation in the 2021 ESPP at any time in accordance with procedures, and prior to any applicable deadline, specified by the administrator. Upon withdrawal from the 2021 ESPP, in general the employee will receive all amounts credited to his or her account without interest (unless otherwise required under applicable law) and his or her payroll withholdings or contributions under the 2021 ESPP will cease.
Non-Transferability
Neither contributions credited to a participant’s account nor rights to purchase shares of Class A Common Stock and any other rights and interests under the 2021 ESPP may be assigned, transferred, pledged or otherwise disposed of (other than by will, the laws of descent and distribution or beneficiary designation in the event of death). Any attempt at such prohibited disposition will be without effect, except that we may treat such act as an election to withdraw participation.
Certain Transactions
In the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of shares of Class A Common Stock or our other securities, or other change in Rover’s corporate structure affecting the Class A Common Stock occurs (other than any ordinary dividends or other ordinary distributions), the administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2021 ESPP in such manner it may deem equitable, will adjust the number and class of shares that may be delivered under the 2021 ESPP, the purchase price per share, the class and the number of shares covered by each purchase right under the 2021 ESPP that has not yet been exercised, and the numerical limits of the 2021 ESPP.
In the event of our proposed dissolution or liquidation, any ongoing offering periods will be shortened and will terminate immediately before completion of the proposed dissolution or liquidation following the purchase of shares under the shortened offering periods, unless provided otherwise by the administrator. Prior to the new exercise date, the administrator will notify participants regarding the new exercise date and the exercise to occur on such date.
In the event of our merger or “change in control” (as defined in the 2021 ESPP), each outstanding option under the 2021 ESPP will be assumed or substituted for by the successor corporation or its parent or subsidiary. In the event that options are not assumed or substituted for, the offering period will be shortened by setting a new exercise date on which the offering period will end, which will occur prior to the closing of the merger or change in control. Prior to the new exercise date, the administrator will notify participants regarding the new exercise date and the exercise to occur on such date.
Amendment; Termination
The administrator has the authority to amend, suspend or terminate the 2021 ESPP. The 2021 ESPP will automatically terminate in 2041, unless it is terminated sooner. If the administrator determines that the ongoing operation of the 2021 ESPP may result in unfavorable financial accounting consequences, the administrator may modify, amend or terminate the 2021 ESPP to reduce or eliminate such accounting consequence. If the 2021 ESPP is terminated, the administrator in its discretion may terminate all outstanding offering periods either immediately or after completion of the purchase of shares under the 2021 ESPP (which may be adjusted to occur sooner than originally scheduled), or in accordance with their terms. If options are terminated prior to their expiration, then all amounts credited to participants that have not been used to purchase shares will be returned, without interest (unless otherwise required under applicable law), as soon as administratively practicable.
Summary of U.S. Federal Income Tax Consequences
The following summary is intended only as a general guide to the material U.S. federal income tax consequences of participation in the 2021 ESPP. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or non-U.S. jurisdiction to which the participant may be subject. As a result, tax consequences for any particular participant may vary based on individual circumstances.
The 2021 ESPP is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. Under an employee stock purchase plan that so qualifies, no taxable income will be recognized by a participant, and no deductions will be allowable to us, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until there is a sale or other disposition of the shares of common stock acquired under the 2021 ESPP or in the event of the participant’s death while still owning the purchased shares of common stock.
If the participant sells or otherwise disposes of the purchased shares within two years after the start date of the offering period in which the shares were acquired or within one year after the actual purchase date of those shares, then the participant generally will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the shares on the purchase date exceeded the purchase price paid for those shares, and we will be entitled to an income tax deduction equal in amount to such excess, for the taxable year in which such disposition occurs. The amount of this ordinary income will be added to the participant’s basis in the shares, and any resulting gain or loss recognized upon the sale or disposition will be a capital gain or loss. If the shares have been held for more than one year since the date of purchase, the gain or loss will be long-term.
If the participant sells or disposes of the purchased shares more than two years after the start date of the offering period in which the shares were acquired and more than one year after the actual purchase date of those shares, then the participant generally will recognize ordinary income in the year of sale or disposition equal to the lesser of (i) the amount by which the fair market value of the shares on the sale or disposition date exceeded the purchase price paid for those shares and (ii) 85% of the fair market value of the shares on the start date of that offering period. Any additional gain upon the disposition will be taxed as a long-term capital gain. Alternatively, if the fair market value of the shares on the date of the sale or disposition is less than the purchase price, there will be no ordinary income and any loss recognized will be a long-term capital loss. We will not be entitled to an income tax deduction with respect to such disposition.
In addition, a participant’s annual “net investment income,” as defined in Section 1411 of the Code, may be subject to a 3.8% U.S. Federal surtax. Net investment income may include capital gain and/or loss arising from the disposition of shares purchased under the 2021 ESPP. Whether a participant’s net investment income will be subject to this surtax will depend on the participant’s level of annual income and other factors.
If the participant still owns the purchased shares at the time of death, the lesser of (i) the amount by which the fair market value of the shares on the date of death exceeds the purchase price and (ii) 85% of the fair market value of the shares on the start date of the offering period in which those shares were acquired will constitute ordinary income in the year of death.
Number of Awards Granted to Employees, Consultants and Directors
Participation in the 2021 ESPP is voluntary and dependent on each eligible employee’s election to participate, the amount of his or her eligible compensation, and his or her determination as to the portion of his or her eligible compensation to contribute to the 2021 ESPP. Further, the number of shares of Class A Common Stock that may be purchased under the 2021 ESPP is determined, in part, by the price of shares of Class A Common Stock on the first day of each offering period and applicable exercise date of each purchase period. Accordingly, the actual number of shares that would be purchased by any individual under the 2021 ESPP in the future is not determinable. We have not previously sponsored an employee stock purchase plan, and, therefore, the aggregate number of shares of Class A Common Stock which would have been received by or allocated to our named executive officers; executive officers, as a group; and all other current employees who are not executive officers, as a group, who may participate in the 2021 ESPP is not determinable. Non-employee members of the Board are not eligible to participate in the 2021 ESPP.
A Place for Rover, Inc. 2011 Equity Incentive Plan
The Rover 2011 Equity Incentive Plan, or the 2011 Plan, was adopted by the Legacy Rover Board on August 23, 2011 and approved by Legacy Rover’s stockholders on September 12, 2011. The Legacy Rover Board last amended the 2011 Plan on March 9, 2020.
The 2011 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to Legacy Rover’s employees and any employees of any parent or subsidiary of Legacy Rover, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to Legacy Rover’s employees, consultants and directors and the employees, consultants and directors of any parent or subsidiary of Legacy Rover. The 2011 Plan terminated one day prior to the Closing of the Merger and we will not grant any additional awards under the 2011 Plan. The 2011 Plan will, however, continue to govern the terms and conditions of the outstanding awards granted under the 2011 Plan prior to the termination of the 2011 Plan.
Authorized Shares
As of December 31, 2021, the maximum aggregate number of shares (subject to adjustment) of our common stock, which may be subject to awards and sold under the 2011 Plan, was 29,058,836 shares plus: (1) any shares subject to stock options granted under the Dog Vacay, Inc. Amended and Restated 2012 Stock Option Plan and assumed by Legacy Rover pursuant to the Agreement and Plan of Reorganization dated March 29, 2017 by and between Rover and Dog Vacay, Inc. (the “Assumed DV Options”), that, after the date of stockholder approval of the 2011 Plan, expire or otherwise terminate without having been exercised in full; and (2) shares issued pursuant to the exercise of Assumed DV Options that, after the date of stockholder approval of the 2011 Plan, are forfeited to or repurchased by us, with the maximum total number of shares to be added to the 2011 Plan pursuant to Assumed DV Options equal to 379,710 shares.
If an award under the 2011 Plan expires or becomes unexercisable without having been exercised in full, such award is surrendered pursuant to an exchange program or, with respect to restricted stock or restricted stock units, is forfeited to us or repurchased by us due to the failure to vest. Shares that have actually been issued under the 2011 Plan under any award will not be returned to the 2011 Plan and will not become available for future distribution under the 2011 Plan. To the extent an award under the 2011 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2011 Plan. Notwithstanding the foregoing and, subject to adjustment as provided in the 2011 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated in the preceding paragraph, plus, to the extent allowable under Code Section 422 and the Treasury Regulations promulgated thereunder, any shares that become available for issuance under the 2011 Plan as described in this paragraph. As of December 31, 2021, options to purchase approximately 18.1 million shares of our Class A Common Stock were outstanding under the 2011 Plan.
Plan Administration
The Board currently administers the 2011 Plan. Under the 2011 Plan, the administrator has the authority and discretion to select which recipients will receive awards, to choose the type or types of awards to be granted to selected recipients, and to determine the terms that will apply to the awards granted (including the number of shares of common stock that the recipients may be entitled to receive or purchase), which terms may vary from award to award. The administrator also may authorize, generally or in specific cases, any adjustment in the exercise price, vesting schedule, term, or number of shares subject to any award by cancelling such outstanding award and subsequently regranting the award, by amendment or through an exchange program. The administrator also has the authority to determine the fair market value of a share of Rover’s common stock for purposes of the 2011 Plan and the awards granted thereunder. The administrator is authorized to interpret the provisions of the 2011 Plan and individual award agreements and generally to take any other actions that are contemplated by the 2011 Plan or necessary or desirable in the administration of the 2011 Plan and individual award agreements. Any decision made or action taken by the administrator or in connection with the administration of the 2011 Plan will be final and conclusive on all persons.
Stock Options
The administrator granted incentive and non-statutory stock options under the 2011 Plan prior to the Closing of the Merger to Legacy Rover’s employees or the employees of any parent or subsidiary of Legacy Rover. The exercise price of such options had to equal at least the fair market value of Legacy Rover’s common stock on the date of grant. The term of an incentive stock option may not exceed ten years; provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of Legacy Rover’s stock, or of certain of Legacy Rover’s affiliates, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of Legacy Rover’s common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, check, promissory note, shares or other property acceptable to the administrator. Subject to the provisions of the 2011 Plan, the administrator determines the remaining terms of the options (e.g., vesting).
After the termination of service of an employee, director or consultant, he or she may exercise his or her option for the period of time stated in his or her award agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for three months following the termination of service. In some cases, options issued to service providers pursuant to the 2011 Plan may provide that they will remain exercisable for longer periods following a termination of service. However, in no event may an option right be exercised later than the expiration of its term.
Stock Appreciation Rights
No stock appreciation rights were granted under the 2011 Plan prior to the Closing of the Merger.
Restricted Stock
No shares of restricted stock were granted under the 2011 Plan prior to the Closing of the Merger.
Restricted Stock Units
No restricted stock units were granted under the 2011 Plan prior to the Closing of the Merger.
Non-Transferability of Awards
Unless the administrator provides otherwise, the 2011 Plan generally does not allow for the transfer of awards, and only the recipient of an award may exercise an award during his or her lifetime.
Certain Adjustments
In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2011 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2011 Plan or the number, class, and price of shares covered by each outstanding award.
Merger or Change in Control
The 2011 Plan generally provides that in the event of a merger or change in control, as defined under the 2011 Plan, each outstanding award will be treated as the administrator determines without a participant’s consent. The administrator does not need to treat similarly all the awards, all the awards held by the same participant, or all awards of the same type. If the successor corporation does not assume or substitute for an award (or portion thereof); (1) the participant will vest in and have the right to exercise a portion of his or her outstanding options, including shares as to which such awards would not otherwise be vested or exercisable; and (2) with respect to awards with performance-based vesting, a portion of the performance goals or other vesting criteria will be deemed achieved as follows:
•with respect to awards that vest solely as a function of the participant’s continuous status as a service provider over time, then such awards will be deemed vested to the extent that such awards are scheduled to vest as if the participant continuously served as a service provider though the date that is one year following the date of the change in control; and
•with respect to all other awards, an additional 25% of shares subject to such awards will vest (or such lesser number of shares as are unvested as of the date of the change in control).
In the event of a change in control and the subsequent termination of a participant’s status as a service provider within 12 months of the effective date of the change in control, either by us without cause (as defined in the 2011 Plan) or by the participant for good reason (as defined in the 2011 Plan) prior to the vesting of the awards in full, then the vesting of the shares subject to the award will accelerate as to 25% of the shares subject thereto (or such lesser number of shares as are unvested as of the date of the change in control).
Amendment, Termination
The Board has the authority to amend, alter, suspend or terminate the 2011 Plan, provided such action does not impair the existing rights of any participant.
Rover Group Employee Incentive Compensation Plan
The Board has approved the Employee Incentive Compensation Plan, which became effective on July 30, 2021 (the “Master Bonus Plan”).
Unless and until the Board determines otherwise, our compensation committee will administer the Master Bonus Plan. The Master Bonus Plan allows the administrator to provide awards to employees selected for participation, who may include our named executive officers, which awards may be based upon performance goals established by the administrator. The administrator, in its sole discretion, may establish a target award for each participant under the Master Bonus Plan, which may be expressed as a percentage of the participant’s average annual base salary for the applicable performance period, a fixed dollar amount, or such other amount or based on such other formula as the administrator determines to be appropriate.
Under the Master Bonus Plan, the administrator determines the performance goals, if any, applicable to any target award (or portion thereof) for a performance period, which may include, without limitation, goals related to: attainment of research and development milestones; user bookings and booking rates; business divestitures and acquisitions; capital raising; cash flow; cash position; corporate transactions; customer acquisition cost; customer lifetime value; customer acquisition or retention rates; earnings (which may include any calculation of earnings, including but not limited to Adjusted EBITDA); earnings per share; expenses; financial milestones; “gross booking value” or GBV; gross margin; growth in stockholder value relative to the moving average of the S&P 500 Index or another index; internal rate of return; leadership development or succession planning; license or research
collaboration arrangements; market share; net income; net profit; net sales; new product or business development; number of customers; operating cash flow; operating expenses; operating income; operating margin; overhead or other expense reduction; procurement; product release timelines; productivity; profit; regulatory-related milestones or goals; retained earnings; return on assets; return on capital; return on equity; return on investment; return on sales; revenue; sales growth; stock price; time to market; total stockholder return; working capital; and individual objectives such as peer reviews or other subjective or objective criteria. As determined by the administrator, the performance goals may be based on GAAP or non GAAP results and any actual results may be adjusted by the administrator for one-time items or unbudgeted or unexpected items and/or payments of awards under the Master Bonus Plan when determining whether the performance goals have been met. The performance goals may be based on any factors the administrator determines relevant, including without limitation on an individual, divisional, portfolio, project, business unit, segment or company-wide basis. Any criteria used may be measured on such basis as the administrator determines, including without limitation: (a) in absolute terms, (b) in combination with another performance goal or goals (for example, but not by way of limitation, as a ratio or matrix), (c) in relative terms (including, but not limited to, results for other periods, passage of time and/or against another company or companies or an index or indices), (d) on a per-share basis, (e) against our performance as a whole or a segment and/or (f) on a pre-tax or after-tax basis. The performance goals may differ from participant to participant and from award to award. Failure to meet the applicable performance goals will result in a failure to earn the target award, subject to the administrator’s discretion to modify an award. The administrator also may determine that a target award (or portion thereof) will not have a performance goal associated with it but instead will be granted (if at all) as determined by the administrator.
The administrator may, in its sole discretion and at any time, increase, reduce or eliminate a participant’s actual award, and/or increase, reduce or eliminate the amount allocated to the bonus pool for a particular performance period. The actual award may be below, at or above a participant’s target award, in the administrator’s discretion. The administrator may determine the amount of any increase, reduction, or elimination on the basis of such factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers.
Actual awards under the Master Bonus Plan generally will be paid in cash (or its equivalent) in a single lump sum only after they are earned and approved by the administrator, provided that the administrator reserves the right, in its sole discretion, to settle an actual award with a grant of an equity award with such terms and conditions, including vesting requirements, as determined by the administrator in its sole discretion. Unless otherwise determined by administrator, to earn an actual award, a participant must be employed by us (or an affiliate of us, as applicable) through the date the bonus is paid. Payment of bonuses occurs as soon as administratively practicable after the end of the applicable performance period, but in no case after the later of (i) the 15th day of the third month of the fiscal year immediately following the fiscal year in which the bonuses vest and (ii) March 15 of the calendar year immediately following the calendar year in which the bonuses are no longer subject to substantial risk of forfeiture.
Awards under the Master Bonus Plan are subject to reduction, cancellation, forfeiture, or recoupment in accordance with any clawback policy that we adopt pursuant to the listing standards of any national securities exchange or association on which our securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. In addition, the administrator may impose such other clawback, recovery or recoupment provisions with respect to an award under the Master Bonus Plan as the administrator determines necessary or appropriate, including without limitation a reacquisition right in respect of previously acquired cash, stock, or other property provided with respect to an award.
The administrator has the authority to amend or terminate the Master Bonus Plan. However, such action may not materially alter or materially impair the existing rights of any participant with respect to any earned bonus without the participant’s consent. The Master Bonus Plan will remain in effect until terminated in accordance with the terms of the Master Bonus Plan.
401(k) Plan
We maintain a 401(k) retirement savings plan for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements. Under the 401(k) plan, eligible employees may elect to defer a portion of their compensation, within the limits prescribed by the Code, on a pre-tax or after-tax (Roth) basis, through contributions to the 401(k) plan. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, pre-tax contributions to the 401(k) plan and earnings on those pre-tax contributions are not taxable to the employees until distributed from the 401(k) plan, and earnings on Roth contributions are not taxable when distributed from the 401(k) plan. Effective August 2021, we provide employees with a 50% match on their first 4% of contributions after a 30-day waiting period.
Pension benefits
We do not maintain any pension benefit or retirement plans other than the 401(k) Plan.
Nonqualified deferred compensation
We do not maintain any nonqualified deferred compensation plans.
Treatment of Equity Incentive Awards in Connection with the Merger
Director Compensation
The following table sets forth information regarding the total compensation awarded to, earned by or paid to our non-employee directors for their service on our Board for the fiscal year ended December 31, 2021. As described in more detail below under “—Narrative Disclosure to Director Compensation Table—Outside Director Compensation Policy,” our non-employee “excluded directors,” which include Messrs. Clammer, Ganesan and Jacobson, do not receive cash or equity compensation for their Board and committee service. For the year ended December 31, 2021, Legacy Rover did not provide compensation to non-employee directors prior to the completion of the Merger on July 30, 2021, so the table below shows the total compensation awarded to, earned by or paid to our non-employee directors by Rover on a pro-rata basis after July 30, 2021.
Mr. Easterly, the only director who was also a Legacy Rover and Rover employee for the year ended December 31, 2021, received no additional compensation for his service as a director. Mr. Easterly received compensation as an employee of Legacy Rover and Rover during 2021 as reported above under “—Summary Compensation Table.”
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Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) (1)(2)(3)(4) | | Option Awards ($)(4) | | All Other Compensation ($) | | Total ($) |
Susan Athey | | $ | 18,750 | | | $ | 299,268 | | (5) | | — | | | — | | | $ | 318,018 | |
Adam Clammer | | — | | | — | | | | — | | | — | | | — | |
Venky Ganesan | | — | | | — | | | | — | | | — | | | — | |
Greg Gottesman | | $ | 19,583 | | | $ | 299,268 | | (5) | | — | | | — | | | $ | 318,851 | |
Scott Jacobson | | — | | | — | | | | — | | | — | | — | | — | |
Kristina Leslie | | $ | 24,583 | | | $ | 514,757 | | (6) | | — | | | — | | | $ | 539,340 | |
Megan Siegler | | $ | 26,667 | | | $ | 299,268 | | (5) | | — | | | — | | | $ | 325,935 | |
________________
(1)The amounts in this column represent the aggregate grant date fair value of restricted stock unit awards granted to each non-employee director, computed in accordance with the FASB ASC Topic 718. See Note 15—Stock-Based Compensation to the audited consolidated financial statements for a discussion of the assumptions made by us in determining the grant-date fair value of our RSU awards to non-employee directors. (2)All of these RSU awards were granted pursuant to the 2021 Plan.
(3)In the event of a “change in control” (as defined in the 2021 Plan), each non-employee director will fully vest in their outstanding company equity awards immediately prior to the consummation of the change in control, provided that the non-employee director continues to be a non-employee director through such date.
(4)The following table lists the aggregate number of outstanding stock awards and option awards held by non-employee directors as of December 31, 2021:
| | | | | | | | | | | |
Name | Aggregate Number of Shares Underlying Outstanding Stock Awards | | Aggregate Number of Shares Underlying Outstanding Option Awards |
Susan Athey | 24,430 | | 210,553 |
Adam Clammer | — | | — |
Venky Ganesan | — | | — |
Greg Gottesman | 24,430 | | — |
Scott Jacobson | — | | — |
Kristina Leslie | 42,021 | | — |
Megan Siegler | 24,430 | | — |
(5)1/3rd of the 24,430 total shares originally granted pursuant to this RSU award shall vest on each of August 1, 2022, August 1, 2023 and August 1, 2024, subject to the director’s continued service through each vesting date.
(6)On February 23, 2022, 14,007 of the 42,021 total shares originally granted pursuant to this RSU award vested. On March 1, 2022 and on the first of the month every three months thereafter, 1/12th of the remaining total shares granted pursuant to this RSU award shall vest.
Narrative Disclosure to Director Compensation Table
Outside Director Compensation Policy
Prior to the closing of the Merger on July 30, 2021, we had no formal arrangements under which outside directors received compensation for their service on the Board or its committees. Our policy was to reimburse non-employee directors for reasonable, customary, and documented travel expenses to Board or committee meetings, and occasionally grant stock options to non-employee directors upon their respective appointments as directors.
On July 30, 2021, the Board adopted a new compensation policy that governs the cash and equity compensation for our non-employee directors, which became effective on the same date (the “Outside Director Compensation Policy”). The Outside Director Compensation Policy was developed with input from an independent compensation consultant regarding practices and compensation levels at comparable companies. It is designed to attract, retain, and reward non-employee directors. Under the Outside Director Compensation Policy, each of our non-employee directors, other than excluded directors, receives the cash and equity compensation for services described below. We will also continue to reimburse our non-employee directors for reasonable, customary, and documented travel expenses to Board or committee meetings.
For purposes of the Outside Director Compensation Policy, “excluded directors” means any non-employee director who is a current employee, general partner, or other representative of an institutional investor; provided that if an entity ceases to be an institutional investor by ceasing to hold at least 2% of the outstanding shares of our capital stock calculated on a fully diluted basis, each non-employee director who would otherwise be an excluded director if such entity remained an institutional investor may (i) offer to resign, in which case, if the Board rejects such resignation, such non-employee director will no longer constitute an excluded director from the date of such rejection, or (ii) not offer to resign, in which case such non-employee director will only cease to constitute an excluded director if and when such non-employee director is re-elected as a director by our stockholders.
For purposes of the Outside Director Compensation Policy, “institutional investor” means any entity that is an institutional investor that holds at least 2% of the outstanding shares of our capital stock calculated on a fully diluted basis.
The Outside Director Compensation Policy includes a maximum annual limit of $750,000 of cash retainers or fees and equity awards that may be paid, issued, or granted to a non-employee director in any fiscal year, increased to $1,000,000 in an individual’s first year of service as a non-employee director. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with GAAP). Any cash compensation paid or equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), does not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to our non-employee directors.
Cash Compensation
Our non-employee directors, other than the excluded directors, are entitled to receive the following cash compensation for their services under the Outside Director Compensation Policy:
•$35,000 per year for service as a board member;
•$20,000 per year for service as non-executive chair of the board;
•$15,000 per year for service as a lead independent director;
•$20,000 per year for service as chair of the audit committee;
•$10,000 per year for service as a member of the audit committee;
•$12,000 per year for service as chair of the compensation committee;
•$6,000 per year for service as a member of the compensation committee;
•$8,000 per year for service as chair of the nominating and corporate governance committee; and
•$4,000 per year for service as a member of the nominating and corporate governance committee.
Under the Outside Director Compensation Policy, each non-employee director who serves as the chair of a committee is entitled to receive only the additional annual cash fee as the chair of the committee, and not the annual fee as a member of the committee, provided that each non-employee director who serves as the non-executive chair or the lead independent director is entitled to receive the annual fee for service as a board member and an additional annual fee as the non-executive chair or lead independent director, as applicable. All cash payments to non-employee directors are paid by us quarterly in arrears on a pro-rated basis.
Equity Compensation
Initial Award
Each person who first becomes a non-employee director after the effective date of the policy, other than the excluded directors, will receive, on the first trading date on or after the date on which the person first becomes a non-employee director, or the Initial Start Date, an initial award of restricted stock units, or the Initial Award, covering a number of shares of our common stock having a grant date fair value (determined in accordance with GAAP) equal to $300,000; provided that any resulting fraction will be rounded down to the nearest whole share. The Initial Award will vest as follows: one third (1/3rd) of the shares subject to the Initial Award will be scheduled to vest each year following the Initial Start Date on the same day of the month as the Initial Start Date (or, if there is no corresponding day in a particular month, then the last day of that month), in each case subject to the non-employee director continuing to be a non-employee director through the applicable vesting date. If the person was a member of the Board and also an employee, becoming a non-employee director due to termination of employment will not entitle them to an Initial Award. If the person was a non-employee director and an excluded director, ceasing to be an excluded director will not entitle the non-employee director to an Initial Award.
On November 2, 2021, the Board approved RSU grants to the non-employee members of the Board who are not “excluded directors.” The awards to the directors other than Ms. Leslie were consistent with those contemplated by
the Outside Director Compensation Policy for newly appointed directors. The size of the grant to Ms. Leslie reflects an understanding from the time of her 2021 recruitment to the board of directors of Legacy Rover.
Annual Award
Each non-employee director, other than the excluded directors, automatically will receive, on the date of each annual meeting of our stockholders following the effective date of the policy, an annual award of restricted stock units, or an Annual Award, covering a number of shares of our common stock having a grant date fair value (determined in accordance with GAAP) of $150,000; provided that the first annual award granted to an individual who first becomes a non-employee director following the effective date of the policy will have a grant date fair value equal to the product of (A) $150,000 multiplied by (B) a fraction, (i) the numerator of which is equal to the number of fully completed days between the non-employee director’s initial start date and the date of the first annual meeting of our stockholders to occur after such individual first becomes a non-employee director, and (ii) the denominator of which is 365; and provided further that any resulting fraction will be rounded down to the nearest whole share. Each Annual Award will be scheduled to vest in full on the earlier of (i) the one-year anniversary of the grant date or (ii) the date of the next annual meeting of our stockholders following the grant date, in each case subject to the non-employee director continuing to be a non-employee director through the applicable vesting date.
Change of Control
In the event of a “change in control” (as defined in the 2021 Plan), each non-employee director will fully vest in their outstanding company equity awards issued under our outside director compensation policy, including any Initial Award or Annual Award, immediately prior to the consummation of the change in control, provided that the non-employee director continues to be a non-employee director through such date.
Limitation of Liability and Indemnification of Officers and Directors
Our Charter, which became effective upon consummation of the Merger, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the Delaware General Corporate Law (“DGCL”). In addition, if the DGCL is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the DGCL.
In addition, our bylaws, which became effective upon consummation of the Merger, provides that we will indemnify our directors and officers, and may indemnify our employees, agents and any other persons, to the fullest extent permitted by the DGCL. Our bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into indemnification agreements with our directors and executive officers that are broader than the specific indemnification provisions contained in the DGCL and may continue to do so in the future. These indemnification agreements require us to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses reasonably and actually incurred by our directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
We also maintain insurance policies under which our directors and officers are insured, within the limits and subject to the limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits, or proceedings to which they are parties by reason of being or having served as a director or officer of the Company. The coverage provided by these policies applies whether or not we would have the power to indemnify such person against such liability under the provisions of the DGCL. At present, we are not aware of any pending litigation or proceeding involving any person who is one of our directors or officers or is or was one of our directors or officers, or is or was one of our directors or officers serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
PRINCIPAL SECURITYHOLDERS
The following table sets forth the beneficial ownership of our Class A Common Stock as of March 4, 2022 for:
•each person or group of affiliated persons known to us to be the beneficial owner of more than 5% of outstanding Class A Common Stock;
•each of our executive officers and directors; and
•all of our executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated, the persons or entities identified in the table have sole voting power and sole investment power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Exchange Act.
The beneficial ownership percentages set forth in the table below are based on 180,261,620 shares of our Class A Common Stock issued and outstanding as of March 4, 2022.
| | | | | | | | | | | |
Name of Beneficial Owner(1) | Number of Shares Beneficially Owned | | Percentage of Shares Beneficially Owned |
Greater than Five Percent Holders | | | |
Nebula Caravel Holdings, LLC(2) | 14,457,597 | | 8.0% |
Funds affiliated with Foundry Ventures(3) | 20,268,687 | | 11.2% |
Funds affiliated with Madrona Ventures(4) | 26,463,916 | | 14.7% |
Funds affiliated with Menlo Ventures(5) | 17,062,566 | | 9.5% |
Named Executive Officers and Directors | | | |
Adam H. Clammer(6) | 14,457,597 | | 8.0% |
Kristina Leslie(7) | 17,509 | | * |
Aaron Easterly(8) | 7,201,570 | | 3.9% |
Tracy Knox(9) | 1,284,403 | | * |
Brent Turner(10) | 2,609,414 | | 1.4% |
Greg Gottesman(11) | 56,874 | | * |
Susan Athey(12) | 250,553 | | * |
Megan Siegler(13) | — | | * |
Venky Ganesan(14) | 17,062,566 | | 9.5% |
Scott Jacobson(15) | 26,463,916 | | 14.7% |
All current executive officers and directors as a group (10 persons) | 69,404,402 | | 36.9% |
________________
*Less than 1%
(1)Unless otherwise noted, the business address of each of these shareholders is c/o Rover Group, Inc. 720 Olive Way, 19th Floor, Seattle, WA 98101.
(2)Based on our records and a Schedule 13D/A filed with the SEC on February 4, 2022. Nebula Caravel Holdings, LLC is the record holder of the shares reported herein. The TWC Funds are each a managing member of Nebula Caravel Holdings, LLC. True Wind Capital II GP, LLC is the general partner of the TWC Funds. Adam Clammer is a member of our Board and serves as one of the managing members of True Wind Capital GP II, LLC. As such, he may be deemed to have or share beneficial ownership of the Class A Common Stock held directly by Nebula Caravel Holdings, LLC. Mr. Clammer disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein, directly or indirectly. Consists of (a) 3,337,500 shares of Class A Common Stock received in exchange for the same amount of Founder Shares beneficially owned by Sponsor immediately prior to Closing; (b) 8,000,000 shares of Class A Common Stock purchased at Closing by Sponsor pursuant to the Sponsor Backstop Subscription Agreement; (c) 1,969,300
shares of Class A Common Stock beneficially owned by Sponsor which have vested upon the Class A Common Stock achieving certain trading price thresholds; (d) up to 492,326 shares of Class A Common Stock beneficially owned by Sponsor which will vest upon the Class A Common Stock achieving certain trading price thresholds; and (e) 658,471 shares of Class A Common Stock received as part of the cashless exercise of Private Placement Warrants beneficially owned by Sponsor in connection with our redemption of the Private Place Warrants. The business address of Nebula Caravel Holdings, LLC is Four Embarcadero Center, Suite 2100, San Francisco, CA 94111.
(3)These securities are held of record by Foundry Group Next, L.P. (“Foundry Group Next”) and Foundry Venture Capital 2013, L.P. (“Foundry Venture Capital 2013” and, together with Foundry Group Next, “Foundry Ventures”). Consists of (a) 13,229,955 shares of Class A Common Stock, which are held of record by Foundry Venture Capital 2013 and (b) 7,038,732 shares of Class A Common Stock, which are held of record by Foundry Group Next. The business address of Foundry Group is 645 Walnut Street, Boulder, CO 80302.
(4)These securities are held of record by Madrona Venture Fund IV, L.P. (“Madrona Fund IV”) and Madrona Venture Fund IV-A, L.P. (“Madrona Fund IV-A”), as applicable. Madrona Investment Partners IV, L.P. (“Madrona Partners IV”) is the general partner of each of Madrona Fund IV and Madrona Fund IV-A, and Madrona IV General Partner, LLC (“Madrona IV LLC”) is the general partner of Madrona Partners IV. Scott Jacobson, who serves as a member of the Rover Board, together with Tom Alberg, Paul Goodrich, Matt McIlwain, Len Jordan, and Tim Porter are the managing members of Madrona IV LLC, and each may be deemed to share voting and investment power over the securities held by Madrona Fund IV and Madrona Fund IV-A (collectively, “Madrona Ventures”). Each of such individuals disclaims beneficial ownership over such securities except to the extent of his pecuniary interest therein. Consists of (a) 25,806,222 shares of Class A Common Stock, which are held of record by Madrona Fund IV and (b) 657,694 shares of Class A Common Stock, which are held of record by Madrona Fund IV-A. The business address of Madrona Ventures is 999 Third Ave., 34th Floor, Seattle, WA 98104.
(5)These securities are held of record by Menlo Special Opportunities Fund, L.P. (“Menlo Special Opportunities Fund”), Menlo Ventures XI, L.P. (“Menlo Ventures XI”), MMEF XI, L.P. (“MMEF XI”), and MMSOP, L.P. (“MMSOP”, and together with Menlo Special Opportunities Fund, Menlo Ventures XI, and MMEF XI, collectively referred to as “Menlo Ventures”). Consists of (a) 11,086,863 shares of Class A Common Stock, which are held of record by Menlo Ventures XI, (b) 5,455,836 shares of Class A Common Stock, which are held of record by Menlo Special Opportunities Fund, (c) 431,156 shares of Class A Common Stock, which are held of record by MMEF XI and (d) 88,711 shares of Class A Common Stock, which are held of record by MMSOP. Voting and investment power over the shares held by Menlo Ventures XI and MMEF XI are collectively exercised by the following individuals: Douglas Carlisle, Shawn Carolan, Venky Ganesan, John Jarve, H. DuBose Montgomery and Mark Siegel. Voting and investment power over the shares held by Menlo Special Opportunities Fund and MMSOP are collectively exercised by the following individuals: Shawn Carolan, Venky Ganesan, Matthew Murphy and Mark Siegel. Venky Ganesan serves as a member of the Rover Board. The business address of Menlo Ventures is 1300 El Camino Real, Suite 150, Menlo Park, CA 94025.
(6)Consists of the shares described in footnote (2) above (Nebula Caravel Holdings, LLC).
(7)Consists of (a) 17,509 shares of Class A Common Stock held by Ms. Leslie and (b) 24,512 restricted stock units covering shares of Class A Common Stock held by Ms. Leslie, none of which will be vested within 60 days of March 4, 2022.
(8)Consists of (a) 2,980,966 shares of Class A Common Stock held by Mr. Easterly, (b) 5,082,343 shares of Class A Common Stock subject to options held by Mr. Easterly, 4,220,604 shares of which will be vested and exercisable within 60 days of March 4, 2022 and (c) 1,051,072 restricted stock units covering shares of Class A Common Stock held by Mr. Easterly, none of which will be vested within 60 days of March 4, 2022.
(9)Consists of (a) 253,432 shares of Class A Common Stock held by Ms. Knox, (b) 1,241,609 shares of Class A Common Stock subject to options held by Ms. Knox, 1,030,971 shares of which will be vested and exercisable within 60 days of March 4, 2022, and (c) 361,284 restricted stock units covering shares of Class A Common Stock held by Ms. Knox, none of which will be vested within 60 days of March 4, 2022.
(10)Consists of (a) 144,165 shares of Class A Common Stock held by Mr. Turner, (b) 2,715,584 shares of Class A Common Stock subject to options held by Mr. Turner, 2,465,249 shares of which will be vested and exercisable within 60 days of March 4, 2022, and (c) 699,987 restricted stock units covering shares of Class A Common Stock held by Mr. Turner, none of which will be vested within 60 days of March 4, 2022.
(11)Consists of (a) 56,874 shares of Class A Common Stock held by Mr. Gottesman and (b) 24,430 restricted stock units covering shares of Class A Common Stock held by Mr. Gottesmann, none of which will be vested within 60 days of March 4, 2022. Mr. Gottesman is also a minority investor and former general partner in funds affiliated with Madrona Ventures which beneficially own 14.7% of Rover. Mr. Gottesman does not have voting or dispositive control over such funds.
(12)Consists of (a) 155,000 shares of Class A Common Stock held by Ms. Athey, (b) options to purchase 95,553 shares of Class A Common Stock held by Ms. Athey, all of which are exercisable within 60 days of March 4, 2022 and (b) 24,430 restricted stock units covering shares of the Company’s Class A Common Stock held by Ms. Athey, none of which will be vested within 60 days of March 4, 2022.
(13)Consists of 24,430 restricted stock units covering shares of Class A Common Stock held by Ms. Siegler, none of which will be vested within 60 days of March 4, 2022. Ms. Siegler is also minority investor in entities affiliated with Spark Capital Growth Fund, L.P. / Spark Capital Growth Founders Fund, L.P., which beneficially own less than 5% of Rover. Ms. Siegler does not have voting or dispositive control over such funds.
(14)Consists of the shares described in footnote (5) above (funds affiliated with Menlo Ventures, where Mr. Ganesan is a managing member of the general partner of the funds affiliated with Menlo Ventures that hold our Class A Common Stock).
(15)Consists of the shares described in footnote (4) above (funds affiliated with Madrona Ventures, where Mr. Jacobson is a managing member of the general partner of the Madrona Ventures funds that hold our Class A Common Stock).
SELLING SECURITYHOLDERS
This prospectus relates to the possible resale by the Selling Securityholders of up to 91,476,337 shares of our Class A Common Stock. Pursuant to the Investor Rights Agreement, the Stockholder Lock-Up Agreement, the Assignment Agreement, and the Subscription Agreements, we agreed to file a registration statement with the SEC for the purposes of registering for resale all of the shares of Class A Common Stock issued to the Selling Securityholders.
The Selling Securityholders may from time to time offer and sell any or all of the Class A Common Stock set forth below pursuant to this prospectus and any accompanying prospectus supplement. When we refer to the “Selling Securityholders” in this prospectus, we mean the persons listed in the table below, and the pledgees, donees, transferees, assignees, successors, designees and others who later come to hold any of the Selling Securityholders’ interest in the Class A Common Stock other than through a public sale. We cannot advise you as to whether the Selling Securityholders will in fact sell any or all of such Class A Common Stock. In addition, the Selling Securityholders may sell, transfer or otherwise dispose of, at any time and from time to time, the Class A Common Stock in transactions exempt from the registration requirements of the Securities Act after the date of this prospectus. For purposes of this table, we have assumed that the Selling Securityholders will have sold all of the Securities covered by this prospectus upon the completion of the offering. For information regarding transactions between us and the Selling Securityholders, see the sections titled “Certain Relationships and Related Person Transactions” and “Executive Compensation.” Selling Securityholder information for each additional Selling Securityholder, if any, will be set forth by prospectus supplement to the extent required prior to the time of any offer or sale of such Selling Securityholder’s shares pursuant to this prospectus. Any prospectus supplement may add, update, substitute, or change the information contained in this prospectus, including the identity of each Selling Securityholder and the number of shares registered on its behalf. A Selling Securityholder may sell or otherwise transfer all, some or none of such shares in this offering. See the section titled “Plan of Distribution” elsewhere in this prospectus. The following table is prepared based on information provided to us by the Selling Securityholders as of March 4, 2022. It sets forth the name and address of the Selling Securityholders, the aggregate number of shares of Class A Common Stock that the Selling Securityholders may offer pursuant to this prospectus, the beneficial ownership of the Selling Securityholders both before and after the offering, and does not reflect any other Company securities that the Selling Securityholder may own, beneficially or otherwise.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Beneficially Owned Prior to the Offering | | Shares of Common Stock Being Offered | | Shares Beneficially Owned After the Offering |
Name of Beneficial Owner | | Number of Shares | | | Number of Shares | | Percentage |
Assigned Shares | | | | | | | | |
Broad Bay Capital Master Fund(1) | | 6,000,000 | | | 1,000,000 | | | 5,000,000 | | | 2.8 | % |
PIPE Shares | | | | | | | | |
Funds affiliated with Crescent Park Management, L.P.(2) | | 1,965,201 | | | 1,965,201 | | | — | | | — | |
Rover Directors and Executive Officers | | | | | | | | |
Aaron Easterly(3) | | 3,030,040 | | | 1,389,466 | | 1,640,574 | | * |
Greg Gottesman(4) | | 57,753 | | | 57,753 | | | — | | — | | — | |
Rover Shareholders with Beneficial Ownership equal to 5% or Greater or Class A Common Stock | 0 | | | | | | | |
Nebula Caravel Holdings, LLC(5) | | 14,457,597 | | | 6,457,597 | | | 8,000,000 | | | 4.4 | % |
Funds affiliated with Foundry Ventures(6) | | 20,581,627 | | | 20,581,627 | | | — | | | — | |
Funds affiliated with Madrona Ventures(7) | | 26,886,990 | | | 26,886,990 | | | — | | | — | |
Funds affiliated with Menlo Ventures(8) | | 17,332,807 | | | 17,332,807 | | | — | | | — | |
Other Rover Shareholders | | | | | | | | |
Funds affiliated with TCV(9) | | 8,336,474 | | | 8,336,474 | | — | | | — | |
Funds affiliated with T. Rowe Price(10) | | 7,368,422 | | | 7,368,422 | | | — | | | — | |
Rover Shareholders with less than 100,000 shares of Class A Common Stock | | | | | | | | |
Alexi A. Wellman (11) | | 25,000 | | 25,000 | | — | | | — | |
Darren Thompson (12) | | 25,000 | | 25,000 | | — | | | — | |
David Kerko (13) | | 25,000 | | 25,000 | | — | | | — | |
Scott Wagner (14) | | 25,000 | | 25,000 | | — | | | — | |
Total | | 106,116,911 | | 91,476,337 | | 14,640,574 | | | 8.1 | % |
________________
*Less than 1%
(1)Based on our records and a Schedule 13G/A filed with the SEC on February 14, 2022. Consists of 1,000,000 shares of Class A Common Stock purchased by BBCM Master Fund Ltd. pursuant to the Assignment Agreement and also beneficially owned by Broad Bay Capital Management LP. The address for both entities is 1330 Avenue Of The Americas, 21st Floor New York, NY 10019.
(2)Consists of an aggregate of 1,965,201 shares of Class A Common Stock. These securities are held of record by Crescent Park Master Fund, L.P., Crescent Park FOF Partners, L.P., Crescent Park Global Equity Master Fund, L.P., and Crescent Park SPV I, L.P. Such shares include (i) 1,565,007 shares of Class A Common Stock held of record by Crescent Park Master Fund, L.P.; (ii) 121,424 shares of Class A Common Stock held of record by Crescent Park FOF Partners, L.P.; (iii) 158,496 shares of Class A Common Stock held of record by Crescent Park Global Equity Master Fund, L.P.; and (iv) 120,274 shares of Class A Common Stock held of record by Crescent Park SPV I, L.P.
(3)Consists of 3,030,040 shares of Class A Common Stock, of which 49,074 shares are Earnout Shares issuable to Mr. Easterly upon the Class A Common Stock achieving certain trading price thresholds. Mr. Easterly is the Chief Executive Officer of Rover and serves as a member of the Board. See “Principal Securityholders” for Mr. Easterly’s beneficial ownership of our Class A Common Stock, including vested and unvested options and restricted stock units. (4)Consists of 57,753 shares of Class A Common Stock held of record by Mr. Gottesman, of which 879 are Earnout Shares issuable to Mr. Gottesman upon the Class A Common Stock achieving certain trading price thresholds. Mr. Gottesman serves as a member of the Board. Mr. Gottesman is also a minority investor and former general partner in funds affiliated with Madrona Ventures which beneficially own 14.7% of Rover. See “Principal Securityholders” for Mr. Gottesman’s beneficial ownership of our Class A Common Stock, including vested and unvested restricted stock units. (5)Based on our records and a Schedule 13D/A filed with the SEC on February 4, 2022. Nebula Caravel Holdings, LLC is the record holder of the shares reported herein. The TWC Funds are each a managing member of Nebula Caravel Holdings,
LLC. True Wind Capital II GP, LLC is the general partner of the TWC Funds. Adam Clammer is a member of our Board and serves as one of the managing members of True Wind Capital GP II, LLC. As such, he may be deemed to have or share beneficial ownership of the Class A Common Stock held directly by Nebula Caravel Holdings, LLC. Mr. Clammer disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein, directly or indirectly. Consists of (a) 3,337,500 shares of Class A Common Stock received in exchange for the same amount of Founder Shares beneficially owned by Sponsor immediately prior to Closing; (b) 1,969,300 shares of Class A Common Stock beneficially owned by Sponsor which have vested upon the Class A Common Stock achieving certain trading price thresholds; (c) up to 492,326 shares of Class A Common Stock beneficially owned by Sponsor which will vest upon the Class A Common Stock achieving certain trading price thresholds; and (d) 658,471 shares of Class A Common Stock received as part of the cashless exercise of Private Placement Warrants beneficially owned by Sponsor in connection with our redemption of the Private Place Warrants. The business address of Nebula Caravel Holdings, LLC is Four Embarcadero Center, Suite 2100, San Francisco, CA 94111. Nebula Caravel Holdings, LLC was the Sponsor and a greater than 5% holder of the stock of our legal predecessor, Nebula Caravel Acquisition Corp. See “Certain Relationships and Related Person Transactions” for more information. (6)Consists of an aggregate of 20,581,627 shares of Class A Common Stock, of which 312,940 shares are Earnout Shares issuable upon the Class A Common Stock achieving certain trading price thresholds. These securities are held of record by Foundry Group Next and Foundry Venture Capital 2013. Such shares include (i) 13,229,955 shares of Class A Common Stock held of record by Foundry Venture Capital 2013 and (ii) 7,038,732 shares of Class A Common Stock held of record by Foundry Group Next. The business address of the Foundry Ventures is 645 Walnut Street, Boulder, CO 80302.
(7)Consists of an aggregate of 26,886,990 shares of Class A Common Stock, of which 423,074 shares are Earnout Shares issuable upon the Class A Common Stock achieving certain trading price thresholds. These securities are held of record by Madrona Fund IV and Madrona Fund IV-A, as applicable. Madrona Partners IV is the general partner of each of Madrona Fund IV and Madrona Fund IV-A, and Madrona IV LLC is the general partner of Madrona Partners IV. Scott Jacobson, who serves as a member of the Rover Board, together with Tom Alberg, Paul Goodrich, Matt McIlwain, Len Jordan, and Tim Porter are the managing members of Madrona IV LLC, and each may be deemed to share voting and investment power over the securities held by Madrona Ventures. Each of the managing members disclaims beneficial ownership over such securities except to the extent of his pecuniary interest therein. Such shares include (i) 25,806,222 shares of Class A Common Stock held of record by Madrona Fund IV and (ii) 657,694 shares of Class A Common Stock, held of record by Madrona Fund IV-A. The business address of Madrona Ventures is 999 Third Ave., 34th Floor, Seattle, Washington 98104.
(8)Consists of an aggregate of 17,332,807 shares of Class A Common Stock of which 270,241 shares are Earnout Shares issuable upon the Class A Common Stock achieving certain trading price thresholds. These securities are held of record by Menlo Special Opportunities Fund, Menlo Ventures XI, MMEF XI, and MMSOP. Such shares include (i) 5,455,836 shares of Class A Common Stock, held of record by Menlo Special Opportunities Fund; (ii) 11,086,863 shares of Class A Common Stock held of record by Menlo Ventures XI; (iii) 431,156 shares of Class A Common Stock held of record by MMEF XI; and (iv) 88,711 shares of Class A Common Stock, held of record by MMSOP. Voting and investment power over the shares held by Menlo Ventures XI and MMEF XI are collectively exercised by the following individuals: Douglas Carlisle, Shawn Carolan, Venky Ganesan, John Jarve, H. DuBose Montgomery and Mark Siegel. Voting and investment power over the shares held by Menlo Special Opportunities Fund and MMSOP are collectively exercised by the following individuals: Shawn Carolan, Venky Ganesan, Matthew Murphy and Mark Siegel. Venky Ganesan serves as a member of the Rover Board. The business address of Menlo Ventures is 1300 El Camino Real, Suite 150, Menlo Park, CA 94025.
(9)Based on our records and a Schedule 13G/A filed with the SEC on February 7, 2022. Consists of an aggregate of 8,336,474 shares of Class A Common Stock of which 142,027 shares are Earnout Shares issuable upon the Class A Common Stock achieving certain trading price thresholds. These securities are held of record by TCV Member Fund, L.P., (“TCV Member Fund”), TCV VIII(A), L.P. (“TCV VIII (A)”), TCV VIII (B), L.P. (“TCV VIII (B)”), and TCV VIII, L.P. (“TCV VIII” and, together with TCV Member Fund, TCV VIII (A) and TCV VIII (B), the “TCV Funds”)). Technology Crossover Management VIII, Ltd. (“Management VIII”) is a general partner of TCV Member Fund and the general partner of Technology Crossover Management VIII, L.P. (“TCM VIII”), which is the general partner of TCV VIII, TCV VIII (A), and TCV VIII (B). Management VIII may be deemed to beneficially own the securities held by the TCV Funds and TCM VIII may be deemed to beneficially own securities held by TCV VIII (A), TCV VIII (B) and TCV VIII, but each of Management VIII and TCM VIII disclaim beneficial ownership of such securities except to the extent of their pecuniary interest therein. Such shares include (i) 429,234 shares of Class A Common Stock held of record by TCV Member Fund; (ii) 1,572,358 shares of Class A Common Stock held of record by TCV VIII(A); (iii) 362,134 shares of Class A Common Stock held of record by TCV VIII(B); and (iv) 5,830,721 shares of Class A Common Stock held of record by TCV VIII. The business address of the TCV Funds is 250 Middlefield Road, Menlo Park, CA 94025.
(10)Consists of an aggregate of 7,368,422 shares of Class A Common Stock, of which 1,008,324 shares are Earnout Shares already issued or issuable in the future upon the Class A Common Stock achieving certain trading price thresholds. These securities are held of record by the following entities: (a) Costco 401K Retirement Plan (“Costco”); (b) Jeffrey LLC (“Jeffrey”); (c) MassMutual Select Funds – MassMutual Select T. Rowe Price Small and Mid Cap Blend Fund (“MMSF”); (d) Minnesota Life Insurance Company (“Minnesota Life”); (e) T. Rowe Price Institutional Small Cap Stock Fund (“Institutional Small Cap”); (f) T. Rowe Price Moderate Allocation Portfolio (“Moderate Allocation Portfolio”); (g) T. Rowe
Price New Horizons Fund, Inc. (“New Horizons Fund”); (h) T. Rowe Price New Horizons Trust (“New Horizons Trust”); (i) T. Rowe Small-Cap Stock Fund, Inc. (“Small-Cap SF”); (j) T. Rowe Price Spectrum Moderate Allocation Fund (“Moderate Allocation Fund”); (k) T. Rowe Price Spectrum Conservative Allocation Fund (“Conservative Allocation Fund”); (l) T. Rowe Price Spectrum Moderate Growth Allocation Fund (“Moderate Growth Allocation Fund”); (m) T. Rowe Price U.S. Equities Trust (“U.S. Equities Trust”), (n) T. Rowe Price U.S. Small Core Equity Trust (“U.S. Small Core Equity Trust); (o) TD Mutual Funds – TD U.S. Small-Cap Equity Fund (“TD U.S. Small-Cap Equity Fund”); (p) The Bunting Family III, LLC (“Bunting Family III”); (q) The Bunting Family VI Socially Responsible LLC (“Bunting Family VI Socially Responsible”); (r) U.S. Small-Cap Stock Trust (“Small-Cap Stock Trust”); and (s) VALIC Company I – Small Cap Fund (“VALIC Small Cap”, together with the foregoing, the “T. Rowe Price Funds”). Of these shares: (i) 31,594 shares of Class A Common Stock are held of record by Costco; (ii) 24,075 shares of Class A Common Stock are held of record by Jeffrey; (iii) 15,883 shares of Class A Common Stock are held of record by MMSF; (iv) 7,756 shares of Class A Common Stock are held of record by Minnesota Life; (v) 361,835 of Class A Common Stock shares are held of record by Institutional Small Cap; (vi) 823 shares of Class A Common Stock are held of record by Moderate Allocation Portfolio; (vii) 4,399,933 of Class A Common Stock shares are held of record by New Horizons Fund; (viii) 486,834 shares of Class A Common Stock are held of record by New Horizons Trust; (ix) 773,380 of Class A Common Stock shares are held of record by Small-Cap SF; (x) 10,622 of Class A Common Stock shares are held of record by Moderate Allocation Fund; (xi) 6,383 of Class A Common Stock shares are held of record by Conservative Allocation Fund; (xii) 13,478 shares of Class A Common Stock are held of record by Moderate Growth Allocation Fund; (xiii) 37,207 shares of Class A Common Stock are held of record by U.S. Equities Trust; (xiv) 111,010 shares of Class A Common Stock are held of record by U.S. Small Cap Equity Core (xv) 27,568 shares of Class A Common Stock are held of record by TD U.S. Small-Cap Equity Fund; (xvi) 9,909 shares of Class A Common Stock are held of record by The Bunting Family III; (xvii) 3,203 shares of Class A Common Stock are held of record by The Bunting Family VI SR; (xviii) 30,457 shares of Class A Common Stock are held of record by U.S Small Cap Stock Trust; and (xix) 8,145 of Class A Common Stock shares are held of record by VALIC Small Cap. For purposes of reporting requirements of the Securities Exchange Act of 1934, TRPA may be deemed to be the beneficial owner of all of these shares, however, TRPA expressly disclaims that it is, in fact, the beneficial owner of such shares. TRPA is the wholly owned subsidiary of T. Rowe Price Group, Inc., which is a publicly traded financial services holding company. The business address of each of the T. Rowe Price Funds is 100 East Pratt Street, Baltimore, Maryland 21202.
(11)Consists of 25,000 shares of Class A Common Stock transferred by the Sponsor to Ms. Wellman. Ms. Wellman was a director of Nebula Caravel Acquisition Corp., our legal predecessor company, from inception until the Closing of the Merger.
(12)Consists of 25,000 shares of Class A Common Stock transferred by the Sponsor to Mr. Thompson. Mr. Thompson was a director of Nebula Caravel Acquisition Corp., our legal predecessor company, from inception until the Closing of the Merger.
(13)Consists of 25,000 shares of Class A Common Stock transferred by the Sponsor to Mr. Kerko. Mr. Kerko was a director of Nebula Caravel Acquisition Corp., our legal predecessor company, from inception until the Closing of the Merger.
(14)Consists of 25,000 shares of Class A Common Stock transferred by the Sponsor to Mr. Wagner. Mr. Wagner was a director of Nebula Caravel Acquisition Corp., our legal predecessor company, from inception until his resignation on May 13, 2021.
DESCRIPTION OF CAPITAL STOCK
The following description summarizes certain important terms of our capital stock as of the date of this prospectus as specified in our Certificate of Incorporation and Bylaws. Because the following description is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this section titled “Description of Capital Stock,” you should refer to the Certificate of Incorporation, the Bylaws, and the Investor Rights Agreement, which are included as exhibits to the registration statement of which this prospectus is a part, and to the applicable provisions of Delaware law.
Authorized and Outstanding Stock
The authorized capital stock of Rover is 1,000,000,000 shares, $0.0001 par value per share, of which:
•990,000,000 shares are designated as Class A Common Stock; and
•10,000,000 shares are designated as Preferred Stock.
Common Stock
The Certificate of Incorporation authorizes a single class of common stock, Class A Common Stock. Some of the rights of Class A Common Stockholders and terms of the Class A Common Stock are discussed in greater detail below.
Dividend Rights
Subject to preferences that may apply to any shares of Preferred Stock outstanding at the time, the holders of Class A Common Stock are entitled to receive dividends out of funds legally available if the Board, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Board may determine.
No Preemptive or Similar Rights
Holders of Class A Common Stock are not entitled to preemptive rights and are not subject to redemption or sinking fund provisions.
Voting Rights
Holders of Class A Common Stock are entitled to one vote for each share held as of the applicable record date on all matters submitted to a vote of stockholders.
Our stockholders do not have the ability to cumulate votes for the election of directors. As a result, the holders of a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors can elect all of the directors standing for election, if they should so choose. With respect to matters other than the election of directors, at any meeting of the stockholders at which a quorum is present or represented, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at such meeting and entitled to vote on the subject matter shall be the act of the stockholders, except as otherwise provided by law, Rover’s governing documents or the rules of the stock exchange on which Rover’s securities are listed. The holders of a majority of the voting power of the capital stock issued and outstanding and entitled to vote as of the applicable record date, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders.
Our Certificate of Incorporation and Bylaws provide for a classified board of directors consisting of three classes of approximately equal size, each serving staggered three-year terms. Only the directors in one class are to be elected at each annual meeting of Rover’s stockholders, with the directors in the other classes continuing for the remainder of their respective three-year terms.
Liquidation Rights
If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of its Class A Common Stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of Preferred Stock.
Preferred Stock
The Board is authorized, subject to limitations prescribed by Delaware law, to issue shares of authorized but unissued preferred stock in one or more series, and to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in each case without further vote or action by our stockholders. These powers, rights, preferences and privileges could include dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price(s) and liquidation preferences, and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing change in Rover’s control or other corporate action. As of December 31, 2021, there are no shares of preferred stock outstanding, and we have no present plan to issue any shares of preferred stock.
Registration Rights
Under the Investor Rights Agreement, the holders of Registrable Securities (as defined in the Investor Rights Agreement) or their permitted transferees will have the right to require us to register the offer and sale of their shares, or to include their shares in any registration statement we file, in each case as described below.
Demand Registration Rights
The holders of Registrable Securities are entitled to certain demand registration rights. At any time after the expiration of a lock-up to which such shares are subject, the holders of (i) at least a majority of the shares held by Caravel stockholders (the “Caravel Demand Holders”) or (ii) at least $20 million of shares held by former Legacy Rover stockholders (the “Rover Demand Holders”), in each case having registration rights then outstanding, can request that we file a registration statement on Form S-1 or, if then available, Form S-3, to register the offer and sale of their shares. We are only obligated to effect one such registration during any six-month period, or no more than two underwritten demand registrations for each of the Caravel Demand Holders and Rover Demand Holders. These demand registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under certain circumstances. If we determine that it would be materially detrimental to Rover and its stockholders to effect such a demand registration, then we have the right to defer such registration, not more than twice in any 12-month period, for a period of not more than 90 days.
Form S-3 Registration Rights
The holders of Registrable Securities are entitled to certain Form S-3 registration rights. Rover shall file a registration statement for an offering to be made on a continuous basis no later than 30 days following the date that we become eligible to use Form S-3. The holders of at least $25 million of shares having registration rights then outstanding can request that we effect an underwritten public offering pursuant to such resale shelf registration statement. We are only obligated to effect two such registrations in a 12-month period, and no more than three such registrations for each of the Caravel Demand Holders and Rover Demand Holders. These Form S-3 registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under certain circumstances.
Piggyback Registration Rights
The holders of Registrable Securities are entitled to certain “piggyback” registration rights. If we propose to register the offer and sale of our common stock under the Securities Act, all holders of these shares then outstanding can request that we include their shares in such registration, subject to certain marketing and other limitations, including the right of the underwriters to limit the number of shares included in any such registration statement under certain circumstances. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a registration (i) relating to any employee stock option or other benefit plan, (ii) relating to an exchange offer or offering of securities solely to our existing stockholders, (iii) relating to an offering of debt that is convertible into equity securities of Rover, (iv) on Form S-4 related to any merger, acquisition or business combination, (v) for a dividend reinvestment plan or (vi) filed in connection with a block trade.
Expenses of Registration
Subject to certain limitations, we will pay the registration expenses (other than underwriting discounts, selling commissions and stock transfer taxes) of the holders of the shares to be offered and sold pursuant to the registrations described above, as well as the reasonable fees and disbursements of one counsel for selling stockholders, including the reasonable fees and disbursements of one counsel chosen by the holders of the shares included in such registrations.
Termination
The registration rights terminate upon the earlier of (i) the seventh anniversary of the Investor Rights Agreement and (ii) the date as of which all of the registrable securities have been sold pursuant to a registration statement or are permitted to be sold under Rule 144 or any similar provision under the Securities Act. With respect
to a given holder of registration rights, the registration rights terminate upon the earliest date when such holder of registration rights (a) ceases to hold at least $15 million of registrable securities and (b) can sell all of such holder’s registrable securities without limitation pursuant to Rule 144 promulgated under the Securities Act.
Registration Rights for PIPE Shares
Pursuant to the PIPE Subscription Agreements, we agreed to file with the SEC (at our sole cost and expense) within 45 days after the Closing of the Merger a registration statement registering the resale of the PIPE Shares. This registration statement on Form S-1 was declared effective on September 23, 2021.
Form S-8 Registration Statement
We filed a registration statement on Form S-8 under the Securities Act to register the shares of Class A Common Stock issued or issuable under our 2021 Plan, 2021 ESPP and 2011 Plan. The Form S-8 registration statement became effective automatically upon filing, and shares covered by the registration statement became eligible for sale in the public market, subject to Rule 144 limitations applicable to affiliates and vesting restrictions.
Anti-Takeover Effects of Certain Provisions of Delaware and Washington Law, the Certificate of Incorporation and the Bylaws
Certain provisions of Delaware law, Washington law, the Certificate of Incorporation and the Bylaws which are summarized below, may have the effect of delaying, deferring or discouraging another person from acquiring control of us. They are also designed, in part, to encourage persons seeking to acquire control of Rover to negotiate first with the Board. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer will outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We will be governed by the provisions of Section 203 of the DGCL. Section 203 generally prohibits a publicly held Delaware corporation from engaging in a “business combination” with any “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
•the business combination or transaction which resulted in the stockholder becoming an interested stockholder was approved by the board of directors prior to the time that the stockholder became an interested stockholder;
•upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include:
•mergers or consolidations involving the corporation, or any direct or indirect majority-owned subsidiary of the corporation, and the interested stockholder or any other entity if the merger or consolidation is caused by the interested stockholder;
•any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation or any direct or indirect majority-owned subsidiary of the corporation;
•subject to exceptions, any transaction that results in the issuance or transfer by the corporation, or any direct or indirect majority-owned subsidiary of the corporation, of any stock of the corporation or such subsidiary to the interested stockholder;
•any transaction involving the corporation, or any direct or indirect majority-owned subsidiary of the corporation, that has the effect of increasing the proportionate share of the stock or any class or series of the corporation or such subsidiary beneficially owned by the interested stockholder; and
•the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
These provisions may have the effect of delaying, deferring or preventing changes in control of Rover.
Washington Business Corporation Act
The laws of Washington, where our principal executive offices are located, impose restrictions on certain transactions between certain foreign corporations and significant stockholders. In particular, the Washington
Business Corporation Act, or WBCA, prohibits a “target corporation,” with certain exceptions, from engaging in certain “significant business transactions” with a person or group of persons which beneficially owns 10% or more of the voting securities of the target corporation, or an “acquiring person,” for a period of five years after such acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation’s board of directors prior to the time of acquisition. Such prohibited transactions may include, among other things:
•any merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the acquiring person;
•any termination of 5% or more of the employees of the target corporation as a result of the acquiring person’s acquisition of 10% or more of the shares; and
•allowing the acquiring person to receive any disproportionate benefit as a stockholder.
After the five-year period, a significant business transaction may take place as long as it complies with certain fair price provisions of the statute or is approved at an annual or special meeting of stockholders.
We will be considered a “target corporation” so long as our principal executive office is located in Washington, and: (i) a majority of its employees are residents of the state of Washington or we employ more than one thousand residents of the state of Washington; (ii) a majority of our tangible assets, measured by market value, are located in the state of Washington or we have more than $50.0 million worth of tangible assets located in the state of Washington; and (iii) any one of the following: (a) more than 10% of our stockholders of record are resident in the state of Washington; (b) more than 10% of our shares are owned of record by state residents; or (c) 1,000 or more of our stockholders of record reside in the state.
If we meet the definition of a target corporation, the WBCA may have the effect of delaying, deferring or preventing a change of control.
Certificate of Incorporation and Bylaws Provisions
The Certificate of Incorporation and Bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of the Board or management. Among other things, the Certificate of Incorporation and the Bylaws:
•permit the Board to issue shares of preferred stock, with any powers, rights, preferences and privileges as they may designate;
•provide that the authorized number of directors may be changed only by resolution of the Board;
•provide that all vacancies and newly created directorships, may, except as otherwise required by law, Rover’s governing documents or resolution of the Board, and subject to the rights of holders of Rover Preferred Stock, only be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
•divide the Board into three classes, each of which stands for election once every three years;
•for so long as the Board is classified, and subject to the rights of holders of Rover’s preferred stock, provide that a director may only be removed from the Board by the stockholders for cause;
•require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;
•provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also meet specific requirements as to the form and content of a stockholder’s notice;
•not provide for cumulative voting rights (therefore allowing the holders of a plurality of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);
•provide that special meetings of our stockholders may be called only by the Board, the chairperson of the Board, our chief executive officer or our president; and
•provide that stockholders will be permitted to amend certain provisions of the Certificate of Incorporation and the Bylaws only upon receiving at least two-thirds of the voting power of the then outstanding voting securities, voting together as a single class.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders have appraisal rights in connection with a merger or consolidation of Rover. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in Rover’s name to procure a judgment in Rover’s favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of Rover’s shares at the time of the transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law.
Exclusive Forum
Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on Rover’s behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the DGCL or the Certificate of Incorporation and the Bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), except for, as to each of (1) through (4) above, any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction. This provision would not apply to any action brought to enforce a duty or liability created by the Exchange Act and inclusive of rules and regulations thereunder. The Bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States are the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our securities shall be deemed to have notice of and consented to the foregoing bylaw provisions. Rover’s stockholders will not be deemed to have waived Rover’s compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provisions.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A Common Stock is American Stock Transfer & Trust Company, LLC. The transfer agent and registrar’s address is 6201 15th Avenue, Brooklyn, NY 11219.
Listing
The Class A Common Stock is listed under the Nasdaq symbol “ROVR.”
SECURITIES ACT RESTRICTIONS ON RESALE OF SECURITIES
Rule 144
Subject to the section below entitled “—Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies,” a person who has beneficially owned restricted shares of Class A Common Stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act, as applicable, during the 12 months preceding the sale (or for such shorter period that we were required to file such reports), other than Form 8-K reports, at the time of the sale. Persons who have beneficially owned restricted shares of Class A Common Stock for at least six months but who are our affiliates at the time of, or any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period a number of securities that does not exceed the greater of:
•1% of the then outstanding equity shares of the same class; and
•the average weekly trading volume of Class A Common Stock during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.
Sales by affiliates of Rover under Rule 144 are also subject to certain requirements relating to manner of sale, notice and the availability of current public information about Rover.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
•the issuer of the securities that was formerly a shell company has ceased to be a shell company;
•the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
•the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
•at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
While we were formed as a shell company, since the completion of the Merger we are no longer a shell company, and so, once the other conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities. The earliest date that Rule 144 will become available is August 5, 2022, so long as all other conditions are satisfied as of that date.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a summary of material U.S. federal income tax considerations of the ownership and disposition of our common stock acquired in this offering by a “non-U.S. holder” (as defined below) but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based on the provisions of the Code, Treasury Regulations promulgated thereunder and administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax considerations different from those set forth below. We have not sought, and do not intend to seek, any ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This summary also does not address the tax considerations arising under the laws of any U.S. state or local or non-U.S. jurisdiction or under U.S. federal gift and estate tax rules, or the effect, if any, of the Medicare contribution tax on net investment income. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or all tax considerations applicable to investors that may be subject to special tax rules, including, without limitation:
•banks, insurance companies, or other financial institutions;
•persons subject to the alternative minimum tax;
•tax-exempt organizations;
•pension plans and tax-qualified retirement plans;
•controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax;
•entities or arrangements classified as partnerships or other pass-through entities for U.S. federal income tax purposes (or investors in such entities or arrangements);
•brokers or dealers in securities or currencies;
•traders in securities that elect to use a mark-to-market method of tax accounting for their securities holdings;
•persons who own, or are deemed to own, more than five percent of our common stock (except to the extent specifically set forth below);
•certain former citizens or long-term residents of the United States;
•persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction,” or other risk reduction transaction;
•persons who hold or receive our common stock pursuant to the exercise of any option;
•persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment);
•persons deemed to sell our common stock under the constructive sale provisions of the Code; or
•persons subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into account in an “applicable financial statement” as defined in Section 451(b) of the Code.
In addition, if a partnership (or other entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner and upon the activities of the partnership. A partner in a partnership that will hold our common stock should consult his, her or its own tax advisor regarding the tax considerations of the purchase, ownership and disposition of our common stock through a partnership.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax considerations of the purchase, ownership and disposition of our common stock arising under the U.S. federal gift or estate tax rules or under the laws of any U.S. state or local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, you are a “non-U.S. holder” if you are a beneficial owner of our common stock that, for U.S. federal income tax purposes, is neither a partnership nor:
•an individual who is a citizen or resident of the United States;
•a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof, or otherwise treated as such for U.S. federal income tax purposes;
•an estate whose income is subject to U.S. federal income tax regardless of its source; or
•a trust (x) whose administration is subject to the primary supervision of a U.S. court and that has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) that has made a valid election under applicable Treasury Regulations to be treated as a U.S. person.
Dividends
As described in the section titled “Dividend Policy,” we have never declared or paid cash dividends on our Class A Common Stock, and we do not anticipate paying any cash dividends for the foreseeable future. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock as described below under “—Gain on Disposition of Common Stock.” Subject to the discussions below regarding effectively connected income, backup withholding and FATCA (as defined below) withholding, any dividend paid to you generally will be subject to U.S. federal withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty between the United States and your country of residence. Under applicable Treasury Regulations, the applicable withholding agent may withhold up to 30% of the gross amount of the entire distribution even if the amount constituting a dividend, as described above, is less than the gross amount. In order to receive a reduced treaty rate, you must provide the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. If you hold our common stock through a financial institution or other agent acting on your behalf, you generally will be required to provide appropriate documentation to the agent, which then may be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
Dividends received by you that are treated as effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, that are attributable to a permanent establishment or fixed base maintained by you in the United States) are generally exempt from the 30% U.S. federal withholding tax,
subject to the discussions below regarding backup withholding and FATCA withholding. In order to obtain this exemption, you must provide the applicable withholding agent with a properly executed IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to U.S. federal withholding tax, generally are taxed at the U.S. federal income tax rates applicable to U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty between the United States and your country of residence. You should consult your tax advisor regarding the tax consequences of the ownership and disposition of our common stock, including the application of any applicable tax treaties that may provide for different rules.
Gain on Disposition of Common Stock
Subject to the discussions below regarding backup withholding and FATCA withholding, you generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:
•the gain is effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base maintained by you in the United States);
•you are an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
•our common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation,” or a USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock.
We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our United States and worldwide real property interests plus our other assets used or held for use in a trade or business, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, your common stock will be treated as a United States real property interest only if you actually (directly or indirectly) or constructively hold more than five percent of our outstanding common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock.
If you are a non-U.S. holder described in the first bullet above, you generally will be required to pay tax on the gain derived from the sale or other disposition of our common stock (net of certain deductions and credits) under U.S. federal income tax rates applicable to U.S. persons, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be subject to tax at a 30% rate (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale or other disposition, which gain may be offset by U.S. source capital losses for the year, provided you have timely filed U.S. federal income tax returns with respect to such losses. You should consult your tax advisor regarding any applicable income tax or other treaties that may provide for different rules.
Backup Withholding and Information Reporting
Generally, payors must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
Payments of dividends on or of proceeds from the disposition of our common stock made to you may also be subject to backup withholding at the applicable statutory rate (currently, 24%) and additional information reporting unless you establish an exemption, for example, by properly certifying your non-U.S. status on a properly completed IRS Form W-8BEN or W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if the applicable withholding agent has actual knowledge, or reason to know, that you are a U.S. person.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Additional Withholding Requirements under the Foreign Account Tax Compliance Act
Subject to the following paragraph, Sections 1471 through 1474 of the Code and the Treasury Regulations and other official IRS guidance issued thereunder, or, collectively, FATCA, generally impose a U.S. federal withholding tax of 30% on dividends on, and the gross proceeds from a sale or other disposition of, our common stock paid to a “foreign financial institution” (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are non-U.S. entities with U.S. owners) or such institution otherwise establishes an exemption. Subject to the following paragraph, FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on, and the gross proceeds from a sale or other disposition of, our common stock paid to a “non-financial foreign entity” (as specially defined under these rules), unless such entity provides the withholding agent with a certification identifying the substantial direct and indirect U.S. owners of the entity, certifies that it does not have any substantial U.S. owners, or otherwise establishes an exemption.
The withholding obligations under FATCA generally apply to dividends on our common stock and to the payment of gross proceeds of a sale or other disposition of our common stock. However, the U.S. Treasury Department has issued proposed regulations that, if finalized in their present form, would eliminate FATCA withholding on gross proceeds of the sale or other disposition of our common stock (but not on payments of dividends). The preamble of such proposed regulations states that they may be relied upon by taxpayers until final regulations are issued or until such proposed regulations are rescinded. The withholding tax under FATCA will apply regardless of whether the payment otherwise would be exempt from U.S. nonresident and backup withholding tax, including under the exemptions described above. Under certain circumstances, you might be eligible for refunds or credits of such taxes. An intergovernmental agreement between the United States and your country of residence may modify the requirements described in this section. You should consult with your own tax advisors regarding the application of FATCA withholding to your investment in, and ownership and disposition of, our common stock.
The preceding discussion of U.S. federal income tax considerations is for general information only. It is not tax advice to investors in their particular circumstances. You should consult your own tax advisor regarding the particular U.S. federal, state and local, and non-U.S. tax considerations of purchasing, owning and disposing of our common stock, including the consequences of any proposed change in applicable laws.
PLAN OF DISTRIBUTION
We are registering securities for resale by the Selling Securityholders. As used herein, references to “Selling Securityholders” includes donees, pledgees, transferees, distributees or other successors-in-interest selling shares of Class A Common Stock or interests in the Securities received after the date of this prospectus from a Selling Securityholder as a gift, pledge, partnership distribution or other transfer.
We will not receive any of the proceeds of the sale of the Securities offered by this prospectus. The aggregate proceeds to the Selling Securityholders from the sale of the Securities will be the purchase price of the Securities less any discounts and commissions. We will not pay any brokers’ or underwriters’ discounts and commissions in connection with the registration and sale of the Securities covered by this prospectus. The Selling Securityholders reserve the right to accept and, together with their respective agents, to reject, any proposed purchases of Securities to be made directly or through agents.
The Securities offered by this prospectus may be sold from time to time to purchasers:
•directly by the Selling Securityholders;
•through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, commissions or agent’s commissions from the Selling Securityholders or the purchasers of the Securities; or
•through a combination of any of these methods of sale.
Any underwriters, broker-dealers or agents who participate in the sale or distribution of the Securities may be deemed to be “underwriters” within the meaning of the Securities Act. As a result, any discounts, commissions or concessions received by any such broker-dealer or agents who are deemed to be underwriters will be deemed to be underwriting discounts and commissions under the Securities Act. Underwriters are subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities under the Securities Act and the Exchange Act. We will make copies of this prospectus available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. To our knowledge, there are currently no plans, arrangements or understandings between the Selling Securityholders and any underwriter, broker-dealer or agent regarding the sale of the Securities by the Selling Securityholders.
The securities may be sold in one or more transactions at:
•fixed prices;
•prevailing market prices at the time of sale;
•prices related to such prevailing market prices;
•varying prices determined at the time of sale; or
•negotiated prices.
These sales may be effected in one or more transactions:
•through one or more underwritten offerings on a firm commitment or best efforts basis;
•settlement of short sales entered into after the date of this prospectus;
•agreements with broker-dealers to sell a specified number of the securities at a stipulated price per share;
•in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents;
•in privately negotiated transactions;
•in options or other hedging transactions, whether through an options exchange or otherwise;
•in distributions to members, limited partners or stockholders of Selling Securityholders;
•any other method permitted by applicable law;
•on any national securities exchange or quotation service on which the Securities may be listed or quoted at the time of sale, including Nasdaq;
•in the over-the-counter market;
•in transactions otherwise than on such exchanges or services or in the over-the-counter market;
•any other method permitted by applicable law; or
•through any combination of the foregoing.
These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade.
In connection with distributions of the Securities or otherwise, the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the Securities in the course of hedging transactions, broker-dealers or other financial institutions may engage in short sales of the Securities in the course of hedging the positions they assume with Selling Securityholders. The Selling Securityholders may also sell the Securities short and redeliver the Securities to close out such short positions. The Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of the Securities offered by this prospectus, which Securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Securityholders may also pledge the Securities to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged Securities pursuant to this prospectus (as supplemented or amended to reflect such transaction).
A Selling Securityholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell the Securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by any Selling Securityholder or borrowed from any Selling Securityholder or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from any Selling Securityholder in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement (or a post-effective amendment). In addition, any Selling Securityholder may otherwise loan or pledge the Securities to a financial institution or other third party that in turn may sell the Securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
At the time a particular offering of the Securities is made, a prospectus supplement, if required, will be distributed, which will set forth the name of the Selling Securityholders, the aggregate amount of Securities being offered and the terms of the offering, including, to the extent required, (1) the name or names of any underwriters, broker-dealers or agents, (2) any discounts, commissions and other terms constituting compensation from the Selling Securityholders and (3) any discounts, commissions or concessions allowed or reallowed to be paid to broker-dealers. We may suspend the sale of Securities by the Selling Securityholders pursuant to this prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplemented or amended to include additional material information.
The Selling Securityholders also may transfer the Securities in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus. Upon being notified by a Selling Securityholder that a donee, pledgee, transferee, other successor-in-interest intends to sell our Securities, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a Selling Securityholder.
The Selling Securityholders will act independently of us in making decisions with respect to the timing, manner, and size of each resale or other transfer. There can be no assurance that the Selling Securityholders will sell any or all of the Securities under this prospectus. Further, we cannot assure you that the Selling Securityholders will not transfer, distribute, devise or gift the Securities by other means not described in this prospectus. In addition, any Securities covered by this prospectus that qualify for sale under Rule 144 of the Securities Act may be sold under Rule 144 rather than under this prospectus. The Securities may be sold in some states only through registered or licensed brokers or dealers. In addition, in some states the Securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification is available and complied with.
The Selling Securityholders may, from time to time, pledge or grant a security interest in some shares of the Securities owned by them and, if a Selling Securityholder defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell such shares of the Securities, from time to time, under this prospectus, or under an amendment or supplement to this prospectus amending the list of the Selling Securityholders to include the pledgee, transferee or other successors in interest as the Selling Securityholders under this prospectus. The Selling Securityholders also may transfer shares of the Securities in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
A Selling Securityholder that is an entity may elect to make an in-kind distribution of the Securities to its members, partners or shareholders pursuant to this prospectus is a part by delivering a prospectus. To the extent that such members, partners or shareholders are not affiliates of ours, such members, partners or stockholders would thereby receive freely tradable shares of the Securities pursuant to the distribution through this prospectus.
For additional information regarding expenses of registration, see the section titled “Use of Proceeds” appearing elsewhere in this prospectus.
LEGAL MATTERS
The validity of the Securities offered hereby has been passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Seattle, Washington, which has acted as our counsel in connection with this offering. Certain members of, and investment partnerships comprised of members of, and persons associated with, Wilson Sonsini Goodrich & Rosati, Professional Corporation, directly or indirectly own less than 0.1% of the outstanding shares of our common stock.
EXPERTS
The financial statements of Rover Group, Inc. as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act that registers the shares of our Class A Common Stock to be offered by this prospectus. This prospectus constitutes only a part of the registration statement. Some items are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our securities, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or document referred to are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information about issuers, like us, that file electronically with the SEC. We also maintain a website at www.rover.com. We make available, free of charge, on our investor relations website at investors.rover.com under “Financials—SEC Filings,” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after electronically filing or furnishing those reports to the SEC. Information contained on our website is not a part of or incorporated by reference into this prospectus and the inclusion of our website and investor relations website addresses in this prospectus is an inactive textual reference only.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Rover Group, Inc. Audited Financial Statements | Page |
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Rover Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rover Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2021 and the manner in which it accounts for revenue from contracts with customers in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
March 21, 2022
We have served as the Company's auditor since 2018.
ROVER GROUP, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
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| December 31, |
| 2021 | | 2020 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 278,904 | | | $ | 80,848 | |
Accounts receivable, net | 26,023 | | | 2,992 | |
Prepaid expenses and other current assets | 6,113 | | | 3,629 | |
Total current assets | 311,040 | | | 87,469 | |
Property and equipment, net | 20,874 | | | 24,923 | |
Operating lease right-of-use assets | 21,495 | | | — | |
Intangible assets, net | 4,469 | | | 7,967 | |
Goodwill | 33,159 | | | 33,159 | |
Deferred tax asset, net | 1,477 | | | 1,235 | |
Long-term investments | 4,292 | | | — | |
Other noncurrent assets | 348 | | | 134 | |
Total assets | $ | 397,154 | | | $ | 154,887 | |
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) | | | |
Current liabilities | | | |
Accounts payable | $ | 5,043 | | | $ | 1,301 | |
Accrued compensation and related expenses | 6,600 | | | 3,269 | |
Accrued expenses and other current liabilities | 3,021 | | | 2,747 | |
Deferred revenue | 3,077 | | | 751 | |
Pet parent deposits | 28,269 | | | 7,931 | |
Pet service provider liabilities | 10,894 | | | 6,140 | |
Debt, current portion | — | | | 4,128 | |
Operating lease liabilities, current portion | 2,433 | | | — | |
Total current liabilities | 59,337 | | | 26,267 | |
Deferred rent, net of current portion | — | | | 2,248 | |
Debt, net of current portion | — | | | 33,398 | |
Operating lease liabilities, net of current portion | 25,198 | | | — | |
Derivative warrant liabilities | 19,943 | | | — | |
Other noncurrent liabilities | 84 | | | 4,659 | |
Total liabilities | 104,562 | | | 66,572 | |
Commitments and contingencies (Note 11) | | | |
Redeemable convertible preferred stock, $0.00001 par value, no shares and 87,611 authorized as of December 31, 2021 and 2020, respectively; no shares and 90,814 shares issued and outstanding as of December 31, 2021 and 2020, respectively; aggregate liquidation preference of $294,802 as of December 31, 2020 | — | | | 290,427 | |
Stockholders’ equity (deficit): | | | |
Preferred stock, $0.0001 par value, 10,000 and no shares authorized as of December 31, 2021 and 2020, respectively; no shares issued and outstanding as of December 31, 2021 and 2020, respectively | — | | | — | |
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Common stock, $0.0001 par value, 990,000 and 144,250 shares authorized as of December 31, 2021 and 2020, respectively; 177,342 and 30,398 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 18 | | | 3 | |
Additional paid-in capital | 612,680 | | | 53,909 | |
Accumulated other comprehensive income | 220 | | | 253 | |
Accumulated deficit | (320,326) | | | (256,277) | |
Total stockholders’ equity (deficit) | 292,592 | | | (202,112) | |
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) | $ | 397,154 | | | $ | 154,887 | |
The accompanying notes are an integral part of these consolidated financial statements.
ROVER GROUP, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
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| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenue | $ | 109,837 | | | $ | 48,800 | | | $ | 95,052 | |
Costs and expenses: | | | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | 26,536 | | | 19,823 | | | 23,522 | |
Operations and support | 14,928 | | | 12,371 | | | 19,882 | |
Marketing | 19,937 | | | 16,332 | | | 49,921 | |
Product development | 22,712 | | | 22,567 | | | 22,066 | |
General and administrative | 35,559 | | | 21,813 | | | 24,947 | |
Depreciation and amortization | 7,327 | | | 8,899 | | | 8,390 | |
Total costs and expenses | 126,999 | | | 101,805 | | | 148,728 | |
Loss from operations | (17,162) | | | (53,005) | | | (53,676) | |
Other income (expense), net: | | | | | |
Interest income | 49 | | | 488 | | | 2,807 | |
Interest expense | (2,952) | | | (3,154) | | | (204) | |
Loss from impairment of DogHero investment | — | | | (2,080) | | | — | |
Change in fair value of earnout liabilities | (46,015) | | | — | | | — | |
Change in fair value of derivative warrant liabilities | 2,089 | | | — | | | — | |
Other income (expense), net | (284) | | | 172 | | | (1,109) | |
Total other income (expense), net | (47,113) | | | (4,574) | | | 1,494 | |
Loss before income taxes | (64,275) | | | (57,579) | | | (52,182) | |
Benefit from income taxes | 226 | | | 94 | | | 468 | |
Net loss | $ | (64,049) | | | $ | (57,485) | | | $ | (51,714) | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.72) | | | $ | (1.92) | | | $ | (1.77) | |
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 89,004 | | | 29,896 | | | 29,138 | |
The accompanying notes are an integral part of these consolidated financial statements.
ROVER GROUP, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Net loss | $ | (64,049) | | | $ | (57,485) | | | $ | (51,714) | |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | (32) | | | 148 | | | 117 | |
Unrealized gain (loss) on available-for-sale securities | (1) | | | (64) | | | 71 | |
Other comprehensive income | (33) | | | 84 | | | 188 | |
Comprehensive loss | $ | (64,082) | | | $ | (57,401) | | | $ | (51,526) | |
The accompanying notes are an integral part of these consolidated financial statements.
ROVER GROUP, INC.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Stock(1) | | | Common Stock(1) | | Additional Paid-In Capital(1) | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | | Shares | | Amount | | | | |
Balance as of December 31, 2018 | 90,305 | | | $ | 286,736 | | | | 28,778 | | | $ | 3 | | | $ | 41,392 | | | $ | (19) | | | $ | (147,690) | | | $ | (106,314) | |
Cumulative effect of change in accounting principle related to the adoption of ASC 606 | — | | | — | | | | — | | | — | | | — | | | — | | | 612 | | | 612 | |
Issuance of Series G redeemable convertible preferred stock and common stock to settle Barking Dog Ventures, Ltd. holdback | 500 | | | 3,629 | | | | 1 | | | — | | | 4 | | | — | | | — | | | 4 | |
Issuance of common stock from exercises of stock options | — | | | — | | | | 835 | | | — | | | 773 | | | — | | | — | | | 773 | |
Stock-based compensation | — | | | — | | | | — | | | — | | | 4,067 | | | — | | | — | | | 4,067 | |
Issuance of common stock warrants | — | | | — | | | | — | | | — | | | 687 | | | — | | | — | | | 687 | |
Foreign currency translation adjustments | — | | | — | | | | — | | | — | | | — | | | 117 | | | — | | | 117 | |
Unrealized gain on available-for-sale debt securities | — | | | — | | | | — | | | — | | | — | | | 71 | | | — | | | 71 | |
Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | (51,714) | | | (51,714) | |
Balance as of December 31, 2019 | 90,805 | | | 290,365 | | | | 29,614 | | | 3 | | | 46,923 | | | 169 | | | (198,792) | | | (151,697) | |
Issuance of Series G redeemable convertible preferred stock to settle Barking Dog Ventures, Ltd. holdback | 9 | | | 62 | | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock from exercises of stock options | — | | | — | | | | 784 | | | — | | | 788 | | | — | | | — | | | 788 | |
Stock-based compensation | — | | | — | | | | — | | | — | | | 5,541 | | | — | | | — | | | 5,541 | |
Issuance of common stock warrants | — | | | — | | | | — | | | — | | | 657 | | | — | | | — | | | 657 | |
Foreign currency translation adjustments | — | | | — | | | | — | | | — | | | — | | | 148 | | | — | | | 148 | |
Unrealized loss on available-for-sale debt securities | — | | | — | | | | — | | | — | | | — | | | (64) | | | — | | | (64) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | (57,485) | | | (57,485) | |
Balance as of December 31, 2020 | 90,814 | | | 290,427 | | | | 30,398 | | | 3 | | | 53,909 | | | 253 | | | (256,277) | | | (202,112) | |
Conversion of redeemable convertible preferred stock to common stock in connection with reverse recapitalization | (90,814) | | | (290,427) | | | | 90,814 | | | 9 | | | 290,418 | | | — | | | — | | | 290,427 | |
Reverse recapitalization transaction, net of costs and acquired liabilities | — | | | — | | | | 32,721 | | | 4 | | | 213,455 | | | — | | | — | | | 213,459 | |
Earnout liability recognized upon the closing of the reverse recapitalization | — | | | — | | | | — | | | — | | | (228,082) | | | — | | | — | | | (228,082) | |
Reclassification of Sponsor earnout liability upon settlement | — | | | — | | | | — | | | — | | | 33,010 | | | — | | | — | | | 33,010 | |
Reclassification of earnout liability and issuance of common stock upon triggering events | — | | | — | | | | 17,541 | | | 2 | | | 241,075 | | | — | | | — | | | 241,077 | |
Exercise of stock options and issuance of common stock | — | | | — | | | | 5,089 | | | — | | | 6,505 | | | — | | | — | | | 6,505 | |
Issuance of common stock from net exercises of warrants | — | | | — | | | | 779 | | | — | | | — | | | — | | | — | | | — | |
Taxes paid related to settlement of equity awards | — | | | — | | | | — | | | — | | | (8,673) | | | — | | | — | | | (8,673) | |
Stock-based compensation | — | | | — | | | | — | | | — | | | 11,061 | | | — | | | — | | | 11,061 | |
Foreign currency translation adjustments | — | | | — | | | | — | | | — | | | 2 | | | (32) | | | — | | | (30) | |
Unrealized loss on available-for-sale debt securities | — | | | — | | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | (64,049) | | | (64,049) | |
Balance as of December 31, 2021 | — | | | $ | — | | | | 177,342 | | | $ | 18 | | | $ | 612,680 | | | $ | 220 | | | $ | (320,326) | | | $ | 292,592 | |
| | | | | | | | | | | | | | | | |
(1) The shares of the Company's common and redeemable convertible preferred stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio of approximately 1.0379 established in the Merger described in Note 1. |
The accompanying notes are an integral part of these consolidated financial statements.
ROVER GROUP, INC.
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
OPERATING ACTIVITIES | | | | | |
Net loss | $ | (64,049) | | | $ | (57,485) | | | $ | (51,714) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | |
Stock-based compensation | 11,061 | | | 5,541 | | | 4,067 | |
Depreciation and amortization | 14,683 | | | 18,713 | | | 13,596 | |
Non-cash operating lease costs | 2,062 | | | — | | | — | |
Change in fair value of earnout liabilities | 46,015 | | | — | | | — | |
Change in fair value of derivative warrant liabilities | (2,089) | | | — | | | — | |
Net amortization (accretion) of investment premiums (discounts) | — | | | 11 | | | (639) | |
Issuance of common stock warrants | — | | | — | | | 453 | |
Amortization of debt issuance costs | 712 | | | 841 | | | 186 | |
Deferred income taxes | (272) | | | (303) | | | (588) | |
Loss on disposal of property and equipment | 64 | | | 191 | | | 285 | |
Impairment of DogHero investment | — | | | 2,080 | | | — | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | (23,024) | | | (519) | | | (1,760) | |
Prepaid expenses and other current assets | (3,126) | | | 460 | | | (935) | |
Other noncurrent assets | (24) | | | (59) | | | (117) | |
Accounts payable | 3,738 | | | (4,437) | | | 887 | |
Accrued expenses and other current liabilities | 4,060 | | | (3,177) | | | 666 | |
Deferred revenue | 2,325 | | | (1,736) | | | 518 | |
Pet parent deposits | 20,338 | | | (13,508) | | | 2,648 | |
Pet service provider liabilities | 4,754 | | | (5,320) | | | 2,846 | |
Operating lease liabilities | (2,307) | | | — | | | — | |
Other noncurrent liabilities | (587) | | | 1,752 | | | 4,880 | |
Net cash provided by (used in) operating activities | 14,334 | | | (56,955) | | | (24,721) | |
INVESTING ACTIVITIES | | | | | |
Purchase of property and equipment | (881) | | | (910) | | | (16,367) | |
Capitalization of internal-use software | (6,340) | | | (6,757) | | | (11,906) | |
Proceeds from disposal of property and equipment | 24 | | | — | | | — | |
Purchases of available-for-sale securities | (4,293) | | | (16,286) | | | (72,299) | |
Proceeds from sales of available-for-sale securities | — | | | 29,002 | | | 22,356 | |
Maturities of available-for-sale securities | — | | | 23,450 | | | 97,933 | |
Purchase of Series C preference shares of DogHero Ltd. | — | | | — | | | (5,000) | |
Proceeds from sale of DogHero investment | — | | | 2,920 | | | — | |
Net cash provided by (used in) investing activities | (11,490) | | | 31,419 | | | 14,717 | |
FINANCING ACTIVITIES | | | | | |
Proceeds from exercise of stock options and issuance of common stock | 6,505 | | | 788 | | | 773 | |
Taxes paid related to settlement of equity awards | (8,673) | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Proceeds from reverse recapitalization and related financing | 268,282 | | | — | | | — | |
Payment of deferred transaction costs related to reverse recapitalization | (32,743) | | | — | | | — | |
Proceeds from borrowing on credit facilities | — | | | 64,563 | | | — | |
Repayment of borrowings on credit facilities | (38,124) | | | (26,439) | | | — | |
Issuance costs related to debt financing | — | | | (281) | | | — | |
Net cash provided by financing activities | 195,247 | | | 38,631 | | | 773 | |
Effect of exchange rate changes on cash and cash equivalents | (35) | | | 99 | | | (70) | |
Net increase (decrease) in cash and cash equivalents | 198,056 | | | 13,194 | | | (9,301) | |
Cash and cash equivalents, beginning of year | 80,848 | | | 67,654 | | | 76,955 | |
Cash and cash equivalents, end of year | $ | 278,904 | | | $ | 80,848 | | | $ | 67,654 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Cash paid for income taxes | $ | 5 | | | $ | 282 | | | $ | 7 | |
Cash paid for interest | 2,511 | | | 2,073 | | | 19 | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Right-of-use assets obtained in exchange for lease liabilities (excluding those recognized upon initial adoption of ASC 842) | 757 | | | — | | | — | |
Conversion of redeemable convertible preferred stock to common stock | 290,427 | | | — | | | — | |
Earnout liability recognized upon the closing of the reverse recapitalization | 228,082 | | | — | | | — | |
Derivative warrant liabilities recognized upon the closing of the reverse recapitalization | 22,032 | | | — | | | — | |
Reclassification of earnout liabilities to additional paid-in-capital | 274,097 | | | — | | | — | |
Issuance of Series G redeemable convertible preferred stock to settle Barking Dog Ventures, Ltd. holdback | — | | | 62 | | | 3,633 | |
Issuance of common stock warrants under credit facility and subordinated credit facility agreements | — | | | 657 | | | 234 | |
The accompanying notes are an integral part of these consolidated financial statements.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
1. Organization and Description of Business
Rover Group, Inc. (formerly known as Nebula Caravel Acquisition Corp.) and its wholly owned subsidiaries (collectively “Rover” or the “Company”) is headquartered in Seattle, Washington, with offices in Spokane, Washington and internationally in Barcelona, Spain. The Company provides an online marketplace and other related tools, support and services that pet parents and pet service providers can use to find, communicate with, and interact with each other.
On July 30, 2021 (the “Closing Date” or “Closing”), Nebula Caravel Acquisition Corp. (“Caravel”) consummated the previously announced merger pursuant to a Business Combination Agreement and Plan of Merger, dated February 10, 2021 (the “Business Combination Agreement”), by and between Caravel, Fetch Merger Sub, Inc., a wholly owned subsidiary of Caravel (“Merger Sub”), and A Place for Rover, Inc. (hereinafter referred to as “Legacy Rover”). Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into Legacy Rover, with Legacy Rover continuing as the surviving entity and as a wholly owned subsidiary of Caravel (together with the other transactions described in the Business Combination Agreement, the “Merger”). On the Closing Date, Caravel changed its name from Nebula Caravel Acquisition Corp. to “Rover Group, Inc.” See Note 3—Reverse Recapitalization for additional information. Impact of COVID-19
The COVID-19 pandemic continues to impact communities globally, including in the markets we serve in the United States, Canada, the United Kingdom and Western Europe, which in turn impacts our business. Since the outbreak began in March 2020, authorities have implemented numerous restrictive measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. These restrictive measures have not only negatively impacted consumer and business spending habits, including a significant decline in demand for pet services during 2020, the first half of 2021, and with each subsequent variant wave but they have also adversely impacted, and may continue to impact, our workforce and operations. Although the broad availability of vaccines in 2021 resulted in the most severe of these measures being eased in many U.S. geographic regions and recent announcements by certain state and local governments indicate that remaining measures will be lifted in their regions in response to the declining case numbers from the Omicron wave, some measures to contain the COVID-19 outbreak may remain in place, or be reinstated, for a significant period of time if those geographic regions experience a resurgence of COVID-19 infections, as well as new variants of the virus, such as the Delta and Omicron variants. As a result of the pandemic, we experienced an unfavorable impact on our revenue, results of operations and cash flows during 2020, 2021, and with each subsequent variant wave.
The COVID-19 pandemic event and economic conditions were significant in relation to our ability to fund business operations. In response to the impact of COVID-19, we implemented a number of cost-cutting measures to minimize cash outlays, including turning off substantially all paid acquisition marketing activities and reducing other expenses, and implemented a restructuring plan in April 2020 whereby approximately 50% of our employees were terminated or placed on standby. In connection with this restructuring, we incurred severance-related and legal costs of $3.8 million, and modified the terms of stock options previously awarded to impacted employees. See Note 15—Stock-Based Compensation and Note 18—Restructuring. Additionally, in March 2020, the Company borrowed funds to sustain business operations through the initial COVID-19 outbreak. In April 2020, the Company was approved for and received a loan from the Small Business Administration’s Paycheck Protection Program. As of December 31, 2021, all borrowings and loans were repaid. See Note 10—Debt. While we prepared our business for the potential of an extended economic shutdown, recovery began sooner than we expected during 2021. Although we believe that demand for pet care services offered through our platform will continue to rebound as people increasingly return to normalized travel and work activity, the impact of the COVID-19 pandemic, including new variants or sub-variants, may continue to affect our financial results in 2022 and beyond. The extent to which the pandemic continues to impact our business, operating results and financial position will depend on future developments, which are highly uncertain, difficult to predict and beyond our knowledge and control, including but
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
not limited to the duration and spread of the pandemic, its severity, new variants, the actions to contain the virus or treat its impact, the extent of the business disruption and financial impacts, and how quickly and to what extent normal economic and operating conditions can resume. We may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine is in the best interests of our employees and our customers.
Liquidity
On July 30, 2021, the Company completed the Merger and received net proceeds of $235.6 million, net of transaction costs of $32.7 million. See Note 3—Reverse Recapitalization for additional information. The Company has incurred losses from operations and had an accumulated deficit of $320.3 million as of December 31, 2021. The Company has primarily funded its operations with proceeds from the issuance of redeemable convertible preferred stock, common stock and other equity transactions, proceeds from the Merger, and debt borrowings. As the Company continues to invest in expansion activities, management expects operating losses could continue in the foreseeable future. Management believes that the Company’s current cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months from the issuance of these consolidated financial statements.
The Company’s assessment of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties. The Company’s actual results could vary as a result of its near and long-term future capital requirements that will depend on many factors including its growth rate. The Company has based its estimates on assumptions that may prove to be wrong, and it could use its available capital resources sooner than it currently expects. The Company may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, the Company may not be able to raise it on acceptable terms or at all. If the Company is unable to raise additional capital when desired, or if it cannot expand its operations or otherwise capitalize on its business opportunities because it lacks sufficient capital, its business, operating results, and financial condition would be adversely affected.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries, after elimination of all intercompany balances and transactions. The Company has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
For periods prior to the Merger, the reported share and per share amounts have been retroactively converted by the applicable exchange ratio with the exception of the authorized shares and shares reserved for issuance. See Note 3—Reverse Recapitalization for additional information. Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheet and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions, include, but are not limited to, the capitalization and estimated useful life of the Company’s internal-use software development costs, the assumptions used in the valuation of common stock prior to the reverse recapitalization, the assumptions used in the valuation of leases, stock-based compensation expense, earnout liabilities and derivative warrant liabilities. These estimates and assumptions are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from management’s estimates. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates and assumptions.
Net Loss per Share Attributable to Common Stockholders
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Company’s redeemable convertible preferred stock contractually entitled the holders of such shares to participate in dividends, but did not contractually require the holders of such shares to participate in the Company’s losses. As such, net losses for the periods presented were not allocated to these securities.
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is the same as basic net loss per share for each period presented since the effects of potentially dilutive securities are antidilutive given the Company’s net loss.
Segment Information
The Company has one operating segment and one reportable segment. As the Company’s chief operating decision maker, the chief executive officer reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. Substantially all long-lived assets are located in the United States and substantially all revenue is attributed to fees from pet parents and pet service providers based in the United States.
Foreign Currencies
The functional currency for the Company’s foreign subsidiaries is either the U.S. dollar or the local currency depending on the assessment of management. An entity’s functional currency is determined by the currency of the economic environment in which the majority of cash is generated and expended by the entity. The financial statements of all majority-owned subsidiaries and related entities with functional currencies other than the U.S. dollar have been translated into U.S. dollars. All assets and liabilities of the respective entities are translated at year-end exchange rates and all revenue and expenses are translated at average rates during the respective period. Translation adjustments are reported as other comprehensive income (loss) in the consolidated statements of comprehensive loss.
Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency, including U.S. dollars. Gains and losses on those foreign currency transactions are included in determining net loss for the period of exchange and are recorded in other income (expense), net in the consolidated statements of operations. The net effect of foreign currency gains and losses was not material for any of the periods presented.
Certain Significant Risks and Uncertainties
The Company is subject to certain risks and challenges associated with other companies at a similar stage of development, including risks associated with: dependence on key personnel; marketing; adaptation to changing market dynamics and customer preferences; and potential competition including from larger companies that may have greater name recognition, longer operating histories, more and better established customer relationships and greater resources than the Company.
The Company’s ability to provide a reliable platform largely depends on the efficient and consistent operation of its computer information systems and those of its third-party service providers. Any significant interruptions could harm the Company’s business and reputation and result in a loss of business. Further, there has been evidence that the Company has been the subject of cyber-attacks, and it is possible that it will be subject to similar attacks in the future. These attacks may be primarily aimed at interrupting the Company’s business, exposing it to financial
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
losses, or exploiting information security vulnerabilities. To management’s knowledge, no prior attacks or breaches have, individually, or in the aggregate, resulted in any material liability to the Company, any material damage to its reputation, or any material disruption to the Company’s business.
Cash and Cash Equivalents
The Company considers all highly liquid investments with stated maturities of three months or less from the date of purchase to be cash equivalents. As of December 31, 2021 and 2020, cash equivalents primarily consisted of money market fund investments.
Accounts Receivable
Accounts receivable primarily include funds collected by payment processors on the Company’s behalf from pet parents. Bad debt expense and the allowance for doubtful accounts were not material for any of the periods presented.
Investments
The Company classifies its investments in debt securities as available-for-sale. Investment securities are stated at fair value with any unrealized gains or losses included as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and declines in the value of securities judged to be other-than-temporary are included in other income (expense), net in the consolidated statements of operations.
The Company regularly reviews investments for other-than-temporary impairment using both qualitative and quantitative criteria. When assessing investments for other-than-temporary declines in value, the Company considers factors such as, among other things, the extent and length of time the investment’s fair value has been lower than its cost basis, the financial condition and near-term prospects of the investee, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and the expected cash flows from the security. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the consolidated statements of operations and consolidated statements of comprehensive loss. No such adjustments were necessary during the periods presented.
The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Dividend and interest income, and any amortization of premiums and accretion of discounts to maturity are included in interest income, net in the consolidated statement of operations. The interest earned on investments is recorded in interest income in the consolidated statements of operations.
There were no other-than-temporary impairments recognized in accumulated other comprehensive income during all periods presented. Realized gains and losses on sales of available-for-sale securities were not material for all periods presented. See Note 6—Investments for additional information. Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash, investments and accounts receivable. The Company maintains cash balances that may exceed the insured limits set by the Federal Deposit Insurance Corporation. The Company reduces credit risk by placing cash balances with major financial institutions that management assesses to be of high-credit quality.
For the years ended December 31, 2021, 2020, and 2019, no individual pet service provider, pet parent, or affiliate represented 10% or more of the Company’s revenue. As of December 31, 2021 and 2020, accounts receivable was $26.0 million and $3.0 million, respectively, and was comprised primarily of amounts due from payment processors who collected payment from pet parents on behalf of the Company.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
Comprehensive Loss
Certain gains and losses are recognized in comprehensive loss but excluded from net loss. Comprehensive loss includes net loss, unrealized gains and losses on available-for-sale debt securities and foreign currency translation adjustments.
Fair Value of Financial Instruments
Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
Hierarchical levels that are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
| | | | | |
Level 1— | Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. |
Level 2— | Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. |
Level 3— | Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The Company’s assessment of the significance of a specific input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the specific asset or liability. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period. There were no transfers between levels during the periods presented.
The carrying values of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses and other current liabilities approximate fair value based on the highly liquid, short-term nature of these instruments. The carrying amount of the Company’s outstanding debt approximates the fair value as the debt bears a floating rate that approximates the market interest rate.
Property and Equipment, net
Property and equipment are stated at cost and are depreciated or amortized using the straight-line method over the estimated useful lives of the assets. Depreciation provisions are based upon the following estimated useful lives:
| | | | | |
Asset Category | Depreciation Period |
Computers | 3 years |
Furniture and fixtures | 5-7 years |
Leasehold improvements | Shorter of estimated useful life of asset or remaining lease term |
Upon retirement or sale, the cost of disposed assets, and the related accumulated depreciation, is removed from the accounts and any resulting gain or loss is reflected in total costs and expenses in the consolidated statements of operations.
Expenditures for maintenance and repairs are charged to expense as incurred, whereas additions and improvements that increase the value or extend the life of an asset are capitalized to property and equipment.
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Leasehold improvements include enhancements made to the Company’s leased office spaces (primarily in Seattle, Washington).
Internal-Use Software
Costs incurred to develop the Company’s website and software for internal use are capitalized and amortized over its estimated useful life. Capitalization of costs to develop software begin when preliminary development efforts are successfully completed, management has authorized and committed project funding and it is probable that the project will be completed, and the software will be used as intended. The Company also capitalizes costs related to upgrades and enhancements when it is probable the expenditures will result in significant additional functionality or will extend the useful life of existing functionality. Costs related to the design or maintenance of website development and internal-use software are expensed as incurred. The Company periodically reviews website development and internal-use software costs to determine whether the projects will be completed, placed in service, removed from service or replaced by other internally developed or third-party software. If the asset is not expected to provide any future use, the asset is retired, and any unamortized cost is expensed.
Internal-use software is amortized on a straight-line basis over its estimated useful life, generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Management has determined that there has been no impairment of previously capitalized costs during 2021, 2020, and 2019.
Capitalized website development and internal-use software costs are included in property and equipment, net in the consolidated balance sheets. See Note 8—Balance Sheet Components for further information.
Business Combinations
The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition. The Company allocates the purchase price of a business combination, which is the sum of the consideration provided and may consist of cash, equity or a combination of the two, to the identifiable assets acquired and liabilities assumed of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use judgment and estimates, including the selection of valuation methodologies, cost of capital estimates of future revenue and cash flows, discount rates, and selection of comparable companies, among others. The Company’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill.
When the Company issues stock-based or cash awards to an acquired company’s stockholders, the Company evaluates whether the awards are contingent consideration or compensation for post-combination services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the acquired company’s stockholder beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-combination services and recognized as expense over the requisite service period.
Acquisition-related transaction costs are expensed in the period in which the costs are incurred and included in general and administrative expense in the Company consolidated statements of operations.
Goodwill
Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. Management has determined that the Company has a single reporting unit and performs its annual goodwill impairment test as of October 31, or more frequently if events or changes in circumstances indicate that the goodwill may be impaired.
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Events or changes in circumstances which could trigger an impairment review include significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business, significant negative industry or economic trends, significant underperformance relative to historical or projected future results of operations, a significant adverse change in the business climate, cost factors that have a negative effect on earnings and cash flows, an adverse action or assessment by a regulator, estimated per share fair value of common stock, unanticipated competition or a loss of key personnel.
The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if the Company concludes otherwise, then it is required to perform a quantitative assessment for impairment.
The quantitative assessment involves comparing the estimated fair value of the reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the book value of the reporting unit exceeds the fair value, an impairment loss is recognized in an amount equal to the excess, not to exceed the total amount of goodwill allocated to that reporting unit.
The Company completed a qualitative analysis as of October 31, 2021 and no impairment of goodwill was recognized. The Company experienced significant disruption to its business in 2020 as a result of the rapid development of COVID-19 and the corresponding reduction in the demand for its marketplace services. The Company completed qualitative analyses as of October 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020. No impairment of goodwill was recognized during any of the periods presented.
Intangible Assets
Intangible assets are amortized over the estimated useful life of the assets. Amortization of intangible assets associated with or used in the services provided by the Company from which it generates revenue are classified within cost of revenue (exclusive of depreciation and amortization shown separately) in the Company’s statements of operations. Amortization of intangible assets not associated with or used in the services provided by the Company from which it generates revenue are classified within depreciation and amortization expense within the Company’s statements of operations. For the periods presented, amortization of the Company’s capitalized internal-use software costs related to its online platform has been included within costs of revenues. For the periods presented, amortization expense related to other intangible assets have been classified within depreciation and amortization within the Company’s statement of operations.
The Company reviews intangible assets for impairment under the long-lived asset model described below. No impairment of intangible assets was recorded during any of the periods presented.
The Company identified certain intangible assets, consisting of technology and tradenames, as defensive assets. These are assets that the Company acquired but does not intend to actively use. Rather, the Company intends to hold the assets to prevent others from obtaining access to the assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. When such events occur, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the carrying value of the asset or asset group. If impairment exists, the assets are written down to its estimated fair value. There was no impairment of long-lived assets for any of the periods presented.
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Notes to Consolidated Financial Statements
Leases (Topic 842 since January 1, 2021)
The Company determines if an arrangement is or contains a lease at contract inception by assessing whether the arrangement contains an identified asset and whether the lessee has the right to control such asset. Lessees are required to classify leases as either finance or operating leases and to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. The Company determines the initial classification and measurement of its ROU assets and lease liabilities at the lease commencement date and thereafter if modified. The Company does not have material finance leases.
For leases with a term greater than 12 months, the Company records the related ROU asset and lease liability at the present value of lease payments over the term. The term of the Company’s leases equals the non-cancellable period of the lease, including any rent-free periods provided by the lessor, and also includes options to extend or terminate the lease that the Company is reasonably certain to exercise. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable ROU asset or lease liability.
The Company has elected, for all classes of underlying assets, not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term. The Company has also elected to not separate lease and non-lease components for office equipment leases and, as a result, accounts for lease and non-lease components as one component.
The Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company determines its incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Lease payments may be fixed or variable; however, only fixed payments are included in the Company’s lease liability calculation. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses over the lease term. The Company’s lease agreements may contain non-lease components such as common area maintenance, operating expenses or other costs, which are expensed as incurred.
Rent Expense and Leasehold Improvements (Prior to adoption of Topic 842)
Rent expense for leases that provide for scheduled rent increases or free rent periods during the lease term are recognized on a straight-line basis over the term of the related leases. Certain leasehold improvements are funded by landlord incentives or allowances. Such incentives or allowances under operating leases are recorded as a component of other noncurrent liabilities and are amortized as a reduction of rent expense over the term of the related lease. The current portion of deferred rent is presented in accrued expenses and other current liabilities in the consolidated balance sheets. Rent expense and amortization of leasehold improvements are allocated to the different costs and expenses presented in the consolidated statements of operations.
Earnout Liabilities
Rover Earnout Shares
At Closing, Legacy Rover stockholders were entitled to receive up to 19,734,183 shares (“Rover Earnout Shares”) of Class A common stock subject to the occurrence of certain triggering events based on a seven year post-Closing earnout, with (1) 8,770,748 shares earned if the stock price of the Company is or exceeds $12.00 for 20 out of any 30 trading days (“Triggering Event I”), (2) 8,770,748 shares earned if the stock price of the Company is or exceeds $14.00 for 20 out of any 30 trading days (“Triggering Event II”), and (3) 2,192,687 shares earned if the stock price of the Company is or exceeds $16.00 for 20 out of any 30 trading days (“Triggering Event III”) (collectively, the “Triggering Events”). On September 29, 2021, a portion of the Rover Earnout Shares vested upon
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the occurrence of Triggering Event I and Triggering Event II and were subsequently issued on October 6, 2021. If there is a change of control transaction within the seven-year earnout period, then Triggering Event III that has not previously occurred will be deemed to have occurred and a total of 2,192,687 shares will be issued to Legacy Rover equity holders and be eligible to participate in the change of control transaction.
Sponsor Earnout Shares
At Closing, the Sponsor subjected 2,461,627 shares (“Sponsor Earnout Shares”) to vesting and potential forfeiture (and related transfer restrictions) based on a seven year post-Closing earnout, with (1) 984,651 shares being released upon Triggering Event I, (2) 984,651 shares being released upon Triggering Event II, and (3) 492,325 shares being released upon Triggering Event III, in each case, subject to early release for a sale, change of control or going private transaction or delisting after the Closing. On September 29, 2021, the Sponsor Earnout Shares vested upon the occurrence of Triggering Event I and Triggering Event II. If there is a change of control transaction within the seven-year earnout period, then immediately prior to the consummation of the change of control transaction the following will occur: (1) any Triggering Events that have not previously occurred will be deemed to have occurred and (2) all unvested Sponsor Earnout Shares will vest and be eligible to participate in the change of control transaction.
The Rover Earnout Shares and the Sponsor Earnout Shares (collectively “Earnout Shares”) are not indexed to the common stock of the Company and, therefore, are 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 were measured at Closing, and subsequently measured at each reporting date until settled, or they met the criteria for equity classification. Changes in the fair value were recorded as a component of other income (expense), net in the consolidated statements of operations. The aggregate fair value of the Earnout Shares on the Closing Date was estimated using a Monte Carlo simulation model and was determined to be $228.1 million. As of September 29, 2021, the Sponsor Earnout Shares were reclassified to equity. Rover Earnout Shares that vested upon the occurrence of Triggering Event I and Triggering Event II on September 29, 2021 were recorded at fair value until issued on October 6, 2021, at which time the then current fair value was reclassified to additional paid in capital. See Note 7—Fair Value for further information. Derivative Warrant Liabilities
At Closing, 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 (1) 30 days after the completion of the Merger on July 30, 2021 and (2) 12 months from the date of the closing of Caravel’s initial public offering on December 11, 2020 and terminating five years after completion of the Merger.
The Private Warrants and the shares of Class A common stock issuable upon the exercise of the Private Warrants are transferable, assignable or salable after the completion of the Merger, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are generally non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrant. See Note 14—Stock Warrants for further information. Upon consummation of the Merger, the Company evaluated the Warrants and concluded that they do not meet the criteria to be classified within stockholders’ equity (deficit). 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
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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 (deficit). Since the Warrants meet the definition of a derivative, the Company recorded the Warrants as liabilities on the consolidated balance sheet at fair value upon the Closing, with subsequent changes in the fair value recognized in the consolidated statements of operations at each reporting date. The fair value of the Private Warrants were estimated at each measurement date generally using a Monte Carlo simulation valuation model based on multiple inputs, including the implied volatility of the Public Warrants, among others.
On the consummation of the Merger, the Company recorded a liability related to the Warrants of $22.0 million, with an offsetting entry to additional paid-in capital. See Note 7—Fair Value for further information. On December 13, 2021, the Company announced that it would redeem all of the outstanding Public Warrants and Private Warrants. See Note 14—Stock Warrants for further information. Revenue Recognition
The Company operates an online marketplace that provides a platform for pet parents and pet service providers to communicate and arrange for pet services. The Company derives its revenue principally from pet parents’ and pet service providers’ use of the Company’s platform and related services that enable pet service providers to offer, book, and fulfill pet services. Additionally, the Company earns revenue from fees paid by pet service providers for background checks in order to use the Company’s platform, and earns revenue from affiliate relationships.
The Company enters into terms of service with pet service providers and pet parents who wish to use the Company’s platform. The terms of service define the pet service providers’ rights and responsibilities when using the Company’s platform as well as general payment terms. The Company charges a fixed percentage service fee for each arrangement of pet services between the pet parent and the pet service provider on the Company’s platform (a booking). The fixed percentage service fees are established at the time a pet parent or pet provider joined the platform and do not vary based on the volume of transactions. A booking defines the explicit fee from which the Company earns its fixed percentage service fee. The creation of a booking combined with the terms of service establish enforceable rights and obligations for the transaction. A contract exists between the pet service provider and the Company upon the creation of a booking and after the pet service providers’ cancellation period has lapsed. Pet parents are considered the Company’s customers to the extent that they pay a fixed percentage fee to the Company for the booking. Similarly, a contract exists between the pet parent and the Company upon the creation of a booking and after the pet service providers’ cancellation period has lapsed. Pet parents pay for services at the time of booking.
The Company considers the facilitation of the connection between pet service provider and pet parent to be the promise in the contracts. This is consistent with the terms of service, as well as the substance of what a pet service provider or pet parent is expecting from the use of the Company’s platform. While customers have access to the use of the platform, customer support, and other activities, these activities are not considered distinct from each other in the context of the overall arrangement, which is the facilitation of a connection between a pet service provider and a pet parent. As such, the Company has determined that its sole performance obligation is to facilitate a connection between pet service providers and pet parents through its platform. The Company’s performance obligation is satisfied at a point-in-time when the connection has been completed, which is when the pet service provider and pet parent have completed a booking, any related cancellation period has lapsed, and the related underlying pet services have begun. The Company derives revenue from pet service providers and pet parents primarily in the United States, as well as Canada, the United Kingdom and Western Europe. Revenue related to background checks is recorded upon completion of the related background check. From time to time, the Company issues credits or refunds to its pet parents or pet service providers as a result of customer satisfaction matters. Such amounts have historically been immaterial.
Judgment is required in determining whether the Company is the principal or agent in transactions with pet service providers and pet parents. The Company evaluates the presentation of revenue on a gross or net basis based
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Notes to Consolidated Financial Statements
on whether it controls the service provided to the pet parent and is therefore the principal, or the Company arranges for other parties to provide the service to the pet parent and is therefore the agent. The Company has concluded it is the agent in transactions with pet service providers and pet parents because, among other factors, it is not responsible for the delivery of pet services provided by the pet service provider to the pet parent. Accordingly, the Company recognizes revenue on a net basis, representing the fee the Company expects to receive in exchange for providing the access to the Company’s platform to pet service providers and pet parents.
The Company has no significant financing components in its contracts with customers. The Company recognizes revenue net of any sales tax paid related to its revenue transactions.
Pet Parent Discounts
The Company offers discounts to new pet parents to encourage use of the Company’s platform. Discounts are primarily in the form of coupon codes for prospective pet parents and are accounted for as reductions to revenue.
Deferred Revenue
Deferred revenue represents payment received from pet parents in advance of the related performance obligation being satisfied and revenue being recognized and could be subject to return to pet parents upon the cancellation of the booking prior to fulfillment of the Company’s performance obligation based on the applicable terms of service.
Pet Parent Deposits and Pet Service Provider Liabilities
The Company records payments received from pet parents, excluding the revenue portion due to the Company, in advance of the related services being provided as pet parent deposits. As the related performance obligations are satisfied, these amounts are reclassified from pet parent deposits to pet service provider liabilities in the consolidated balance sheets. The Company is subject to compliance with escheat laws applicable by jurisdiction where pet service providers do not claim the amounts owed to them for services rendered.
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, and other direct and indirect costs arising as a result of bookings that take place on our platform.
Operations and Support
Operations and support expenses include payroll, employee benefits, stock-based compensation and other personnel-related costs associated with the Company’s operations and support team, and third-party costs related to outsourced support providers. This team assists with onboarding new pet care 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 care 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. The Company allocates a portion of overhead costs which includes lease expense, utilities and information technology expense to operations and support expense based on headcount.
Marketing
Marketing expenses include payroll, employee benefits, stock-based compensation expenses and other personnel-related costs associated with the Company’s 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, affiliate programs and display advertising, all of which are primarily focused on pet parent acquisition and brand marketing. Except for content creation, advertising expenses are expensed as incurred, and are included in marketing expenses on the consolidated statements of operations. The Company allocates a
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portion of overhead costs which includes lease expense, utilities and information technology expense to marketing expense based on headcount. Advertising expenses were $13.0 million, $8.1 million, and $37.9 million during the years ended December 31, 2021, 2020, and 2019, respectively.
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 maintenance and support costs for technology infrastructure, primarily related to non-revenue generating systems. Product development costs, except qualifying costs related to the development of internal-use software, are expensed as incurred. The Company allocates a portion of overhead costs which includes lease expense, utilities and information technology costs to product development expense based on headcount.
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, such as management, accounting, and legal as well as insurance and other expenses used to run the business. The Company allocates a portion of overhead costs which includes lease expense, utilities and information technology costs to general and administrative expense based on headcount.
Depreciation and Amortization
Depreciation and amortization expenses include depreciation of our property and equipment, leasehold improvements and amortization of intangible assets. Amortization related to internal-use software is included in cost of revenue (exclusive of depreciation and amortization shown separately).
Restructuring Charges
Costs and liabilities associated with restructuring are recorded in the period management commits to a restructuring or cost reduction plan, or executes specific actions contemplated by the plan and all criteria for liability recognition have been met. One-time employee termination costs are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Ongoing employee termination benefits are recognized as a liability when it is probable that a liability exists and the amount is reasonably estimable. Restructuring charges are recognized as an operating expense within the consolidated statements of operations and related liabilities are recorded within accrued compensation and related expenses on the consolidated balance sheets. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information.
Interest Expense
Interest expense consists primarily of interest expense incurred under debt borrowings.
Loss Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fine, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably be estimated. Legal costs for loss contingencies are expensed as incurred.
Stock-Based Compensation
The Company grants stock option awards to certain employees and non-employee directors. The Company accounts for stock-based compensation expense by calculating the estimated fair value of each award at the grant date or modification date by applying the Black-Scholes option pricing model. The model utilizes the estimated per share fair value of the Company’s underlying common stock at the measurement date, the expected or contractual term of the option, the expected stock price volatility, risk-free interest rates, and the expected dividend yield of the common stock. Stock-based compensation expense is recognized on a straight-line basis over the period the
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employee or non-employee director is required to provide service in exchange for the award, which is generally the vesting period. The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
The Company bases its estimate of expected volatility on the historical volatility of comparable companies from a representative peer group selected based on industry, financial, and market capitalization data. The Company recognizes forfeitures as they occur.
Determining the grant date fair value of options using the Black-Scholes option pricing model requires management to make assumptions and judgments. These estimates involve inherent uncertainties and, if different assumptions had been used, stock-based compensation expense could have been materially different from the amounts recorded.
The Company also grants restricted stock units (“RSUs”) to certain employees and non-employee directors. The Company accounts for stock-based compensation expense by calculating the fair value of each award at the grant date based on the closing price of our shares on date of grant. Stock-based compensation expense is recognized on a straight-line basis over the period the employee or non-employee director is required to provide service in exchange for the award, which is generally the vesting period. The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Income Taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amount and tax basis of assets and liabilities and are measured using enacted tax rates in effect for the year in which the difference is expected to reverse. The effect of a change in tax rates or tax law on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided on deferred tax assets if, based upon the available evidence, it is determined to be more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Management regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.
The Company accounts for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more-likely-than-not to be sustained upon examination by the taxing authority, including resolution of any appeals or litigation, on the basis of the technical merits of the position. If the tax position meets the more-likely-than-not criteria, the portion of the tax benefit that has a greater than 50% likelihood of being realized upon settlement with the relevant tax authority is recognized in the consolidated financial statements. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as income tax expense. No interest or penalties were recognized for any of the periods presented.
Recently Adopted Accounting Pronouncements
The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as private companies, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as private companies, as indicated below.
In May 2014, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous industry-specific requirements and converges areas under the Revenue from Contracts with Customers topic with those of the International Financial Reporting Standards. The guidance
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implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Entities were given the option of transitioning to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption (“modified retrospective”). The guidance is effective for the Company for the year beginning after December 15, 2018, with early adoption permitted. Since its issuance, the FASB has amended several aspects of the new guidance including provisions that clarify the implementation guidance on principal versus agent considerations in the new revenue recognition standard. The amendments clarify how an entity should identify the unit of accounting (i.e., the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The Company adopted the new standard on a modified retrospective basis as of January 1, 2019 and there was a net impact of $0.6 million to the Company’s accumulated deficit on the date of adoption.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10). ASU 2016-01 requires equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) to be measured at fair value with any changes in fair value recognized in net income (loss). For equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820, Fair Value Measurements, to estimate fair value using the net asset value per share of the investment, the Company may choose to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance in ASU 2016-01 is effective for the Company for the year beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, with guidance regarding the accounting for and disclosure of leases. The standard requires lessees to recognize a ROU asset and lease liability on its consolidated balance sheet for all leases with a term longer than twelve months. This update also requires lessees and lessors to disclose key information about their leasing transactions. The guidance is effective for the Company for the year beginning after December 15, 2021. Early adoption is permitted. The Company early adopted this standard on January 1, 2021 using the transition method that provides for a cumulative-effect adjustment to retained earnings upon adoption. There was no impact on the Company’s accumulated deficit as of January 1, 2021 as a result of the adoption of this standard. The consolidated financial statements for the year ended December 31, 2021 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. The adoption of the new lease standard resulted in the recognition of operating lease ROU assets of $22.8 million and operating lease liabilities of $29.2 million as of January 1, 2021. In connection with the adoption of this standard, deferred rent, net of current portion of $2.2 million, lease incentives of $4.6 million, and prepaid rent of $0.3 million, which were previously recorded in accrued expenses and other current liabilities, other non-current liabilities, and prepaid expenses and other current assets, respectively, on the consolidated balance sheet as of December 31, 2020, were derecognized.
The new standard also provided practical expedients for an entity’s ongoing accounting as well as transition. The Company has elected the: (1) short-term lease recognition exemption for all leases that qualify, whereby the Company will not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition; (2) practical expedient to not separate lease and non-lease components for office equipment leases; and (3) transition package of three expedients, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which was intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. The guidance in ASU 2016-15 is effective for the Company for the year beginning after December 15, 2018. The Company adopted this standard on a retrospective basis on January 1, 2019. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory and to eliminate diversity of practice and a source of complexity in financial reporting. The guidance in ASU 2016-16 is effective for the Company for the year beginning after December 15, 2018. The Company adopted ASU 2016-16 on a modified retrospective basis on January 1, 2019. There was no impact of this standard at the date of adoption. The application of this standard resulted in the recognition of $0.4 million in income tax expense in the consolidated statement of operations for intra-entity transfers occurring during the year ended December 31, 2019.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance in ASU 2018-07 is effective for the Company for the year beginning after December 15, 2019. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606. The Company early adopted this standard on January 1, 2019. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company for the year beginning after December 15, 2019. The Company adopted this standard on January 1, 2020. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangible – Goodwill and Other-Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for the Company for the year beginning after December 15, 2020. The Company adopted this standard on January 1, 2021 using the prospective transition method. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain for other items, the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This ASU also includes other requirements related to franchise tax, goodwill as part of a business combination, consolidations, changes in tax laws, and affordable housing projects. The guidance is effective for the Company for the year beginning after December 15, 2021. Early adoption is permitted. The Company early adopted this standard on January 1, 2021. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities from an incurred loss methodology to an expected loss methodology. For assets held at amortized cost basis, the guidance eliminates the probable initial recognition threshold and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses are recorded through an allowance for credit losses, rather than a write-down, limited to the amount by which fair value is below amortized cost. Additional disclosures about significant estimates and credit quality are also required. The guidance is effective for the Company for the year beginning after December 15, 2022. The Company will early adopt this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard will not have an material impact on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance is effective for the Company for the year beginning after December 15, 2021. The Company will adopt this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard will not have an immediate impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The guidance is effective for the Company for the year beginning after December 15, 2023. The Company will early adopt this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard will not have an immediate impact on the Company’s consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios. The guidance is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. The Company will adopt this standard on January 1, 2022 and will apply the amendments of this ASU prospectively to any modifications or exchanges of freestanding equity-classified warrants occurring on or after the effective date. The adoption of the new standard will not have an immediate impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU was issued to improve the accounting for acquired revenue
contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: (1) recognition of an acquired contract liability; and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination, whereas current GAAP requires that the acquirer measures such assets and liabilities at fair value on the acquisition date. The guidance is effective for the Company for the year beginning after December 15, 2023, with early adoption permitted. The Company will early adopt this standard on January 1, 2022 using the prospective transition method.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The adoption of the new standard will not have an immediate impact on the Company’s consolidated financial statements.
In November 2021, the FASB issues ASU No. 2021-10 Disclosures by Business Entities about Government Assistance. The amendments in this ASU require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (3) significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for the Company for the year beginning after December 15, 2021. The Company will adopt this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard will not have an immediate impact on the Company’s consolidated financial statements.
3. Reverse Recapitalization
In connection with the Merger, the Company raised $268.3 million of gross proceeds from (1) the contribution of $128.3 million of net cash held in Caravel’s trust account from its initial public offering, (2) $50.0 million from the sale of 5,000,000 shares of Class A common stock at $10.00 per share in a transaction exempt from the registration requirement of the Securities Act of 1933, and (3) $90.0 million from the sale of an aggregate of 9,000,000 shares of Class A common stock at $10.00 per share pursuant to the backstop subscription agreement with affiliates (and an assignee of such affiliates) of the sponsor of Caravel (the “Sponsor Backstop Subscription Agreement”).
Immediately before the Merger, all of Legacy Rover’s outstanding warrants were net exercised for shares of Legacy Rover common stock. Upon the consummation of the Merger, all holders of Legacy Rover common stock and preferred stock received shares of the Company’s Class A common stock at a deemed value of $10.379 per share after giving effect to the applicable exchange ratio based on the completion of the following transactions contemplated by the Business Combination Agreement:
•the conversion of all outstanding shares of Legacy Rover redeemable convertible preferred stock into shares of Legacy Rover common stock at the then-effective conversion rate as calculated pursuant to Legacy Rover’s certificate of incorporation;
•the cancellation of each issued and outstanding share of Legacy Rover common stock (including shares of common stock resulting from the conversion of Legacy Rover redeemable convertible preferred stock) and the conversion into a number of shares of the Company’s Class A common stock equal to an exchange ratio of 1.0379 (“Exchange Ratio”); and
•the conversion of all outstanding vested and unvested Legacy Rover stock options into options exercisable for shares of the Company’s Class A common stock with the same terms except for the number of shares exercisable and the exercise price, each of which were adjusted using the exchange ratio of 1.2006.
No cash consideration was paid out to Legacy Rover stockholders as there was insufficient cash after Caravel common stockholders exercised their right to redeem shares for cash.
In connection with the Merger, the Company incurred $32.7 million of transaction costs. These costs consisted of underwriting, legal, and other professional fees, of which $14.5 million was recorded to additional paid-in capital and the remaining $18.2 million related to liabilities assumed from Caravel that were settled immediately after Closing.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The number of shares of Class A common stock issued immediately following the consummation of the Merger at July 30, 2021 was:
| | | | | |
| Number of Shares |
Common stock of Caravel outstanding prior to the Merger | 27,500,000 | |
Less redemption of Caravel shares | (14,677,808) | |
Caravel Sponsor Earnout Shares outstanding prior to the Merger | 6,875,000 | |
Less forfeiture of Caravel Sponsor Earnout Shares(1) | (975,873) | |
Common stock of Caravel (1) | 18,721,319 | |
Shares issued in PIPE financing | 5,000,000 | |
Shares issued in Sponsor Backstop Subscription Agreement | 8,000,000 | |
Shares issued in Assignment Agreement | 1,000,000 | |
Merger and PIPE financing shares | 32,721,319 | |
Legacy Rover shares (2) | 124,477,819 | |
Total | 157,199,138 | |
_______________
(1)Upon the Merger closing, 3,437,500 Sponsor Earnout Shares vested, 975,873 were forfeited and 2,461,627 Sponsor Earnout Shares remained outstanding and unvested. At Closing, the remaining 2,461,627 Sponsor Earnout Shares were subject to vesting conditions based upon the occurrence of certain triggering events. At the close of trading on September 29, 2021, pursuant to the Business Combination Agreement and the achievement of Trigger Events I and II, 1,969,300 Founder Shares vested.
(2)The number of Legacy Rover shares was determined from the 32,434,987 shares of Legacy Rover common stock and 87,496,938 shares of Legacy Rover redeemable convertible preferred stock outstanding, which were converted to an equal number of shares of Legacy Rover common stock upon the closing of the Merger, and then converted at the Exchange Ratio of 1.0379 to Class A common stock of the Company. All fractional shares were rounded down to the nearest whole share.
The Merger was accounted for as a reverse recapitalization under GAAP because Legacy Rover has been determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Under this method of accounting, Caravel was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the Company will represent a continuation of the financial statements of Legacy Rover with the Merger treated as the equivalent of Legacy Rover issuing stock for the net assets of Caravel, accompanied by a recapitalization. The net assets of Caravel are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are those of Legacy Rover.
Legacy Rover was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
•Legacy Rover stockholders comprising a relative majority of the voting power of Rover;
•Legacy Rover will have the ability to nominate a majority of the members of the board of directors of Rover;
•Legacy Rover’s operations prior to the acquisition comprising the only ongoing operations of Rover;
•Legacy Rover’s senior management comprising a majority of the senior management of Rover; and
•Rover substantially assuming the Legacy Rover name.
4. Business Combinations
On October 31, 2018, the Company acquired all of the outstanding shares of Barking Dog Ventures, Ltd. (“DogBuddy”) in exchange for the issuance of 1.4 million shares of the Company’s common stock, 1.9 million shares of the Company’s Series G redeemable convertible preferred stock, which includes a holdback of 539,000
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
shares of Series G preferred stock, and cash payment of $19.4 million to the stockholders of DogBuddy. The Company, as acquirer, retained a holdback of Series G preferred stock for up to a one-year period as partial security against certain indemnity obligations. The holdback has an estimated fair value of $3.9 million based on the recent transaction price of the Company’s Series G redeemable convertible preferred stock and was recorded to accrued expenses and other current liabilities in the consolidated balance sheets. .
In November 2019, the Company released and issued 0.5 million shares of Series G preferred stock to former stockholders of DogBuddy related to the holdback. The acquisition date estimated fair value of the holdback shares issued during 2019 was $3.6 million. At December 31, 2019, the remaining holdback liability of $0.3 million was recorded in accrued expenses and other current liabilities in the consolidated balance sheets. In February 2020, final settlement of the holdback was completed through the issuance of 9,000 shares of Series G preferred stock. The remaining 30,000 shares were never issued and retained by the Company to cover additional expenses.
Goodwill recorded in connection with the acquisition is primarily attributed to the increased geographic coverage throughout Europe and synergies gained, such as advertising purchasing power and integrated pet service provider networks. None of the resulting goodwill is deductible for tax purposes.
During the year ended December 31, 2019, a measurement period adjustment was made to reduce goodwill from the DogBuddy acquisition by $1.7 million primarily due to an adjustment to the deferred tax asset for pre-acquisition losses that were originally estimated to be unrealizable (see Note 9—Goodwill and Intangible Assets). There was no impact to the consolidated statements of operations for this adjustment. 5. Revenue Recognition
Contract Balances
The Company’s contract liabilities consist of deferred revenue. The changes in the Company’s contract liabilities were as follows (in thousands):
| | | | | |
Balance at December 31, 2019 | $ | 2,488 | |
Revenue recognized | (45,585) | |
Bookings and other | 43,848 | |
Balance at December 31, 2020 | 751 | |
Revenue recognized | (105,356) | |
Bookings and other | 107,682 | |
Balance at December 31, 2021 | $ | 3,077 | |
Substantially all deferred revenue as of December 30, 2020 and December 31, 2019 was recognized as revenue during the years ended December 31, 2021 and 2020, respectively.
6. Investments
Available-for-sale investments consist of fixed-income securities that are accounted for at fair value. Premiums and discounts paid on securities at the time of purchase are amortized over the period of maturity. The amortized cost and fair value of the available-for-sale investments and unrealized gains and losses were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized Costs | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Marketable securities: | | | | | | | |
Corporate securities | $ | 4,293 | | | $ | — | | | $ | (1) | | | $ | 4,292 | |
Total marketable securities | $ | 4,293 | | | $ | — | | | $ | (1) | | | $ | 4,292 | |
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
There were no available-for-sale investments at December 31, 2020. There were no other-than-temporary impairments recognized in accumulated other comprehensive income during all periods presented. Realized gains and losses on sales of available-for-sale securities were not material for all periods presented.
The contractual maturity of the available-for-sale investments were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Less than 1 year | | 1 to 5 year | | More than 5 years | | Total |
Marketable securities: | | | | | | | |
Corporate securities | $ | — | | | $ | 4,292 | | | $ | — | | | $ | 4,292 | |
Total | $ | — | | | $ | 4,292 | | | $ | — | | | $ | 4,292 | |
Other Investments
In March 2019, the Company purchased 3.4 million Series C Preference Shares of DogHero Ltd. (“DogHero”), an online marketplace for pet services in South America, for $5.0 million. The 3.4 million shares acquired represented 17% of DogHero’s fully diluted outstanding equity. In accordance with Accounting Standards Codification (“ASC”) 321, Investments – Equity Securities, the Company elected the measurement alternative to value this equity investment without a readily determinable fair value. The carrying amount of the investment was included in other noncurrent assets in the consolidated balance sheets. In accordance with ASC 321, for each reporting period, the Company completed a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.
In connection with the purchase of Series C Preference Shares, the Company also entered into a call option to purchase the remaining equity of DogHero at a defined exercise price within a two-year period after the initial investment.
In July 2020, the Company received notification that a letter of intent to acquire DogHero had been submitted. The Company was provided the option of receiving cash consideration of $3.0 million or share consideration in the acquiring company. The Company determined that the letter of intent was an indicator of impairment and recorded an impairment loss of $2.0 million, reducing the carrying amount of the investment to $3.0 million. In November 2020, the Company sold its investment and call option in DogHero for $2.9 million. As such, the Company recorded an additional impairment loss of $0.1 million upon disposal of the investment and its related carrying value.
7. Fair Value
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents: | | | | | | | |
Money market fund | $ | 213,539 | | | $ | — | | | $ | — | | | $ | 213,539 | |
Investments: | | | | | | | |
Corporate securities | — | | | 4,292 | | | — | | | 4,292 | |
Total assets measured at fair value | $ | 213,539 | | | $ | 4,292 | | | $ | — | | | $ | 217,831 | |
Liabilities | | | | | | | |
Derivative warrant liabilities (Public Warrants) | $ | 13,585 | | | $ | — | | | $ | — | | | $ | 13,585 | |
Derivative warrant liabilities (Private Warrants) | — | | | 6,358 | | | — | | | 6,358 | |
Total liabilities measured at fair value | $ | 13,585 | | | $ | 6,358 | | | $ | — | | | $ | 19,943 | |
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents: | | | | | | | |
Money market fund | $ | 37,854 | | | $ | — | | | $ | — | | | $ | 37,854 | |
Total assets measured at fair value | $ | 37,854 | | | $ | — | | | $ | — | | | $ | 37,854 | |
During December 2021, the Private Warrants were reclassified from Level 3 to Level 2 financial instruments within the fair value hierarchy. See section “ - Valuation of Private Warrant Derivative Liability” below for further discussion. Other than this transfer between levels during the third and fourth quarter 2021, there were no transfers of financial instruments between valuation levels during the years ended December 31, 2021 and 2020.
Valuation of Earnout Liabilities
Upon the closing of the Merger, the Earnout Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were not indexed to the common stock of the Company, with the change fair value recognized in Change in fair value of earnout liabilities in the consolidated statement of operations.
Triggering Event I and Triggering Event II occurred on September 29, 2021, resulting in the vesting of 1,969,302 Sponsor Earnout Shares on September 29, 2021 and 17,540,964 Rover Earnout Shares being subsequently issued on October 6, 2021.
The estimated fair value of the earnout liability related to the Sponsor Earnout Shares was remeasured to $33.0 million on September 29, 2021, which included:
(i)$26.7 million related to the Sponsor Earnout Shares that vested upon the occurrence of Triggering Event I and Triggering Event II associated with the $12.00 and $14.00 volume-weighted Class A common stock average price (“VWAP”) per share thresholds as of September 29, 2021, and was recorded to additional paid-in capital on September 29, 2021 as such shares were issued and outstanding and thus the obligation was considered settled; and
(ii)$6.3 million related to the estimated fair value of the remaining 492,325 Sponsor Earnout Shares subject to vesting upon the occurrence of the Triggering Event III associated with the $16.00 VWAP per share threshold based on a Monte Carlo simulation valuation model as of September 29, 2021.
On September 29, 2021, the fair value of the remaining unvested Sponsor Earnout Shares was reclassified to equity because the Sponsor Earnout Shares became an instrument contingently issuable upon the occurrence of a triggering event into a fixed number of Class A common shares that is not based on an observable market price or index other than the Company’s own common stock price.
The estimated fair value of the earnout liability related to the Rover Earnout Shares was remeasured to $241.1 million on October 6, 2021, which included:
(i)$216.3 million related to the Rover Earnout Shares issuable upon the occurrence of Triggering Event I and Triggering Event II associated with the $12.00 and $14.00 VWAP per share thresholds as of October 6, 2021; and was recorded to additional paid-in capital on October 6, 2021 as such shares were issued and outstanding and thus the obligation was considered settled; and
(ii)$24.8 million related to the estimated fair value of the remaining 2,192,687 Rover Earnout Shares issuable upon the occurrence of the Triggering Event III associated with the $16.00 VWAP per share threshold based on a Monte Carlo simulation valuation model as of October 6, 2021.
On October 6, 2021, the fair value of the remaining unvested Rover Earnout Shares was reclassified to equity because the Rover Earnout Shares became an instrument contingently issuable upon the occurrence of a triggering event into a fixed number of Class A common shares that is not based on an observable market price or index other than the Company’s own common stock price.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The change in fair value of the earnout liability resulted in a loss of $46.0 million recognized in the consolidated statement of operations for the year ended December 31, 2021.
The estimated fair value of the Earnout Shares was determined using a Monte Carlo simulation valuation model using the following assumptions at each valuation date:
| | | | | | | | | | | | | | | | | |
| October 6, 2021 | | September 29, 2021 | | July 30, 2021 |
Stock price | $ | 12.33 | | | $ | 13.59 | | | $ | 10.99 | |
Risk-free interest rate | 1.29 | % | | 1.29 | % | | 1.00 | % |
Expected term (in years) | 6.82 | | 6.8 | | 7.0 |
Expected volatility | 56.20 | % | | 56.50 | % | | 57.20 | % |
Dividend yield | — | % | | — | % | | — | % |
Current stock price: The stock price was based on the closing price as of the valuation date.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of issuance for zero-coupon U.S. Treasury notes with maturities corresponding to the expected seven-year term of the earnout period.
Expected term: The expected term is the seven-year term of the earnout period.
Expected volatility: The volatility rate was determined using an average of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected seven-year term of the awards.
Expected dividend yield: The expected dividend yield is zero as the Company currently has no history or expectation of declaring dividends in the foreseeable future
Valuation of Private Warrant Derivative Liability
The Private Warrants were initially recorded as a liability on the Closing Date, at a fair value of $7.7 million and were remeasured to fair value as of December 31, 2021, resulting in a gain of $1.3 million for the year ended December 31, 2021, classified within change in fair value of derivative warrant liabilities, in the consolidated statements of operations.
The estimated fair value of the Private Warrants was determined using a Monte Carlo simulation valuation model using the following assumptions at each valuation date:
| | | | | |
| July 30, 2021 |
Stock price | $ | 10.99 | |
Risk-free interest rate | 0.69 | % |
Expected term (in years) | 5.0 |
Expected volatility | 31.50 | % |
Dividend yield | — | % |
Current stock price: The stock price was based on the closing price as of the valuation date.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of issuance for zero-coupon U.S. Treasury notes with maturities corresponding to the expected with the term of the warrant expiration.
Expected term: The expected term represents the period that the warrants are expected to be outstanding and is determined based on maturity of the warrants.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
Expected volatility: The volatility rate was determined using the implied volatility of the Public Warrants to estimate the volatility for the Private Warrants.
Expected dividend yield: The expected dividend yield is zero as the Company currently has no history or expectation of declaring dividends in the foreseeable future.
As of September 30, 2021, the Private Warrants were classified as Level 3 financial instruments within the fair value hierarchy. During December 2021, the Company announced the redemption of its outstanding Public and Private Warrants, and completed the redemption in January 2022, as further discussed in Note 14—Stock Warrants. As a result of the redemption offer under which the Private Warrants would be redeemed on terms substantially similar to those of the Public Warrants, there was a change in valuation technique and the estimated fair value of the Private Warrants was determined using the closing stock price of $2.47 of the Public Warrants on December 31, 2021. As a result, as of December 31, 2021, the Private Warrants were reclassified to Level 2 financial instruments within the fair value hierarchy. The Company classifies financial instruments as Level 2 within the fair value hierarchy are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. Prices of these securities are obtained through independent, third-party pricing services and include market quotations that may include both observable and unobservable inputs. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. In determining the value of a these Private Warrants, we may use certain information with respect to market transactions in substantially similar securities.
The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of a particular input to the fair value measurement requires management to make judgments and consider factors specific to the liability. The fair value hierarchy requires the use of observable market data when available in determining fair value. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period.
8. Balance Sheet Components
Property and Equipment, net
The following table presents the detail of property and equipment, net as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Computers | $ | 1,306 | | | $ | 1,346 | |
Furniture and fixtures | 3,740 | | | 3,906 | |
Leasehold improvements | 13,663 | | | 13,660 | |
Internal-use software | 21,635 | | | 20,850 | |
Total property and equipment | 40,344 | | | 39,762 | |
Less: Accumulated depreciation and amortization | (19,470) | | | (14,839) | |
Total property and equipment, net | $ | 20,874 | | | $ | 24,923 | |
Depreciation and amortization of property and equipment was $3.8 million, $3.7 million and $0.6 million for the years ended December 31, 2021, 2020, and 2019, respectively, and was recorded to depreciation and amortization in the consolidated statements of operations. The Company capitalized $6.3 million and $7.0 million of software development costs during the years ended December 31, 2021 and 2020, respectively. Internal-use software amortization was $7.4 million, $9.8 million, and $5.2 million for the years ended December 31, 2021, 2020, and
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
2019, respectively, and was recorded to cost of revenue (exclusive of depreciation and amortization shown separately) in the consolidated statements of operations.
In April 2020, the Company accelerated the 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 December 2021, the Company accelerated the amortization of $0.3 million in internal-use software related to the grooming service, which was discontinued and is recorded in cost of revenue (exclusive of depreciation and amortization shown separately) in the consolidated statements of operations.
Accrued Expenses and Other Current Liabilities
The following table presents the detail of accrued expenses and other current liabilities as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Accrued merchant fees | $ | 11 | | | $ | 172 | |
Income and other tax liabilities | 1,074 | | | 185 | |
Accrued legal expenses and open claims | 488 | | | 382 | |
Lease incentive, current | — | | | 491 | |
Accrued interest | — | | | 259 | |
Accrued professional services | 918 | | | 872 | |
Other current liabilities | 530 | | | 386 | |
Total accrued expenses and other current liabilities | $ | 3,021 | | | $ | 2,747 | |
9. Goodwill and Intangible Assets
Goodwill
During the year ended December 31, 2019, a measurement period adjustment was made to reduce goodwill from the DogBuddy acquisition by $1.7 million. There was no impact to the consolidated statements of operation for this adjustment (see Note 4—Business Combinations). There was no change in the carrying amount of goodwill during the years ended December 31, 2021 and 2020. Intangible Assets
The gross book value and accumulated amortization of intangible assets were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Book Value | | Accumulated Amortization | | Net Book Value |
Pet parent relationships | $ | 16,290 | | | $ | (11,869) | | | $ | 4,421 | |
Tradenames | 950 | | | (902) | | | 48 | |
Total | $ | 17,240 | | | $ | (12,771) | | | $ | 4,469 | |
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Book Value | | Accumulated Amortization | | Net Book Value |
Pet parent relationships | $ | 16,290 | | | $ | (9,117) | | | $ | 7,173 | |
Pet service provider relationships | 2,000 | | | (1,444) | | | 556 | |
Tradenames | 950 | | | (712) | | | 238 | |
Total | $ | 19,240 | | | $ | (11,273) | | | $ | 7,967 | |
The weighted average amortization period remaining as of December 31, 2021 for each class of intangible assets were as follows (in years):
| | | | | |
Pet parent relationships | 4.3 |
Tradenames | 0.3 |
Amortization expense related to acquired intangible assets for the years ended December 31, 2021, 2020, and 2019 was $3.5 million, $5.2 million, and $7.7 million, respectively. The Company did not recognize any intangible asset impairment losses for any of the periods presented.
Based on amounts recorded at December 31, 2021 the Company estimates intangible asset amortization expense in each of the years ending December 31 as follows (in thousands):
| | | | | |
2022 | $ | 1,347 | |
2023 | 815 | |
2024 | 814 | |
2025 | 814 | |
2026 | 679 | |
Thereafter | — | |
Total | $ | 4,469 | |
10. Debt
In March 2020, the Company borrowed $11.4 million and $15.0 million under the variable rate revolving line of credit and variable rate growth capital advance components, respectively, of the credit facility, and $30.0 million under the subordinated credit facility.
In April 2020, the Company was approved for and received a $8.1 million loan from the Small Business Administration’s Paycheck Protection Program (“PPP”).
In August 2020, the Company repaid the outstanding balance of the revolving line of credit and the growth capital advance.
Upon closing of the Merger, the Company repaid in full the subordinated credit facility of $30.0 million and the PPP loan of $8.1 million. Additionally, in accordance with the subordinated credit facility, the Company made a final termination payment of $0.9 million and accelerated $0.4 million of unamortized debt issuance costs at the termination of the subordinated credit facility.
As of December 31, 2021, the Company had no debt outstanding and terminated its revolving line of credit.
Revolving Line of Credit
The Company renegotiated the credit facility during August 2020 to extend the maturity of the revolving line of credit to May 2022. Subject to the terms and conditions of the credit facility, the lender agreed to make revolving loans to the Company in an amount not to exceed $15.0 million during the term of the agreement. Interest accrues at
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
the greater of (1) 4.50% and (2) the Prime Rate plus a margin of 0.50% per year (3.75% at December 31, 2021), unless certain milestones are achieved then interest accrues at the greater of (1) 4.00% and (2) the Prime Rate. Interest was payable monthly. The Company was required to pay an unused credit facility fee to the lender each quarter in an amount equal to 0.30% per year times the average unused portion of the revolving line. The Company borrowed and repaid $11.4 million on the revolving loan during the year ended December 31, 2020 and issued a $3.5 million letter of credit for the security deposit on its Seattle headquarters office space, which reduced the amount available under the revolving line of credit. At December 31, 2021, the Company had repaid in full all amounts owed under the facility, terminated all commitments and obligations under the revolving line of credit, was 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 its Seattle headquarters and Spokane office space.
Growth Capital Advance
The Company renegotiated the credit facility during August 2020 to amend the growth capital advance component, including extending the maturity to June 2024. Subject to the terms and conditions of the credit facility, the lender agreed to make advances to the Company in three tranches not to exceed $5.0 million under each tranche, up to the total amount of $15.0 million during the draw period, which was available until June 30, 2021. During 2020, the Company drew on the $15.0 million growth capital advance and repaid the outstanding balance. 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 of December 31, 2020. At December 31, 2021, no amounts were outstanding, the Company can no longer borrow under the growth capital advance component of the credit facility, and the Company terminated all commitments and obligations under the credit facility.
For the year ended December 31, 2020, the Company recognized a loss of $353,000 related to the early repayment of the growth capital advance, which is recorded in other income (expense), net in the consolidated statements of operations and included in amortization of debt issuance costs in the consolidated statements of cash flows.
Subordinated Credit Facility
The subordinated credit facility was a term loan advance. Subject to the terms and conditions of the subordinated credit facility, the lender agreed to make advances to the Company to the amount of $30.0 million during the draw period, which was available until June 30, 2020. After principal repayments, no term loan advance may be reborrowed. The term loan advance was interest only on a monthly basis. Outstanding principal and accrued interest were due at the maturity date. Interest accrued at the Prime Rate plus a margin of 4.25% per year. In connection with securing the term loan advance, the Company incurred $269,000 in costs related to originating the debt which were initially capitalized as debt issuance costs. Once the term loan advance of $30.0 million was drawn down in March 2020, the costs were recorded as a debt discount and amortized to interest expense over the term of the term loan advance. Upon closing of the Merger, the Company repaid the full $30.0 million term loan advance and accrued interest of $0.2 million and terminated all commitments and obligations under the subordinated credit facility. As of December 31, 2021, the Company no longer has the ability to make any future draws.
The Company had collateralized the credit facility and the subordinated credit facility with substantially all of its tangible and intangible assets. The credit facility included several affirmative and negative covenants, as well as financial covenants. Financial covenants included minimum liquidity and minimum net revenue amounts and were applicable if the Company’s overall liquidity, as renegotiated in March 2021, was less than or equal to $65.0 million at the end of a reporting period. If the Company defaulted under the terms of the credit facility, it would not be permitted to draw additional funds on the revolving line of credit and the lenders could accelerate the Company’s obligation to pay all outstanding amounts. The Company was in compliance with all of its financial covenants as of the date of its full repayment of the term loan advance upon the Closing of the Merger.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
In conjunction with the credit facility and the subordinated credit facility, the Company issued warrants to the lenders to purchase the Company’s common stock. See Note 14—Stock Warrants for further information. Small Business Administration’s Paycheck Protection Program
In April 2020, the Company entered into the Paycheck Protection Program (the “PPP”) Promissory Note and Agreement, pursuant to which it 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 Coronavirus Aid, Relief, and Economic Security Act and was administered by the U.S. Small Business Administration. The term of the PPP Loan was two years with a maturity date of April 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 until August 2021. The PPP Loan was eligible for forgiveness if the proceeds were used for qualified purposes within a specified period. Upon the Closing of the Merger, the Company repaid the PPP Loan of $8.1 million and accrued interest of $0.1 million, and terminated all commitments and obligations under the PPP Loan.
11. Commitments and Contingencies
Leases
The Company leases certain office space in Seattle and Spokane, Washington and Barcelona, Spain with the lease terms ranging from 21 to 137 months. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional 1 to 7 years. These renewal options have not been considered in the determination of the ROU assets and lease liabilities associated with these leases as the Company has determined it is not reasonably certain it will exercise such options.
In September 2018, the Company entered into a non-cancellable sublease agreement for a portion of one of its leased facilities that commenced on November 1, 2018. In February 2020, the Company amended the sublease to extend the term for an additional two years. Under the term of the amended sublease agreement, the Company will receive an additional $1.4 million in base lease payments plus reimbursement of certain operating expenses over the term of the sublease, which ends in October 2022.
In April 2021, the Company entered into a non-cancellable sublease agreement for a portion of one of its leased facilities that commenced on September 1, 2021. Under the terms of the sublease agreement, the Company will receive $1.7 million in base lease payments plus reimbursement of certain operating expenses over the term of the sublease, which ends in August 2024. The subtenant has the option to renew the sublease for one additional year.
The components of lease cost were as follows (in thousands):
| | | | | |
| Year Ended December 31, 2021 |
Operating lease cost | $ | 4,078 | |
Short-term lease cost | 138 | |
Sublease income | (953) | |
Total lease cost | $ | 3,263 | |
Other information related to leases was as follows (in thousands):
| | | | | |
| Year Ended December 31, 2021 |
Cash paid for operating lease liabilities | $ | 4,313 | |
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
Lease term and discount rate were as follows:
| | | | | |
| December 31, 2021 |
Weighted-average discount rate | 7.14 | % |
Weighted-average remaining lease term (years) | 7.65 |
Maturities of lease liabilities were as follows as of December 31, 2021 (in thousands):
| | | | | |
Year Ending December 31 | Amounts |
2022 | $ | 4,305 | |
2023 | 4,693 | |
2024 | 4,563 | |
2025 | 4,693 | |
2026 | 4,429 | |
Thereafter | 13,781 | |
Total lease payments | 36,464 | |
Less: imputed interest | (8,833) | |
Present value of lease liabilities | 27,631 | |
Less: current portion of lease liabilities | (2,433) | |
Total lease liabilities, noncurrent | $ | 25,198 | |
Under ASC Topic 840, Leases, contractual commitments related to operating leases were as follows as of December 31, 2020 (in thousands):
| | | | | |
Year Ending December 31 | Amounts |
2021 | $ | 4,356 | |
2022 | 4,303 | |
2023 | 4,433 | |
2024 | 4,563 | |
2025 | 4,693 | |
Thereafter | 18,209 | |
Total | $ | 40,557 | |
Net rent expense was $3.6 million and $4.0 million for the years ended December 31, 2020 and 2019, respectively. Net rent expense includes sublease income of $0.7 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively.
Guarantees and Indemnification
In the ordinary course of business to facilitate sales of its services, the Company has entered into agreements with, among others, suppliers, and partners that include guarantees or indemnity provisions. The Company also enters into indemnification agreements with its officers and directors, and the Company’s certificate of incorporation and bylaws include similar indemnification obligations to its officers and directors. To date, there have been no claims under any indemnification provisions, therefore there is no accrual of such amounts for any of the periods presented. The Company is unable to determine the maximum potential impact of these indemnifications on the consolidated financial statements and maintains director and officer insurance coverage that would generally enable
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
it to recover a portion of any future amounts paid.
Litigation and Other
From time to time, the Company is or may become party to litigation and subject to claims incurred in the ordinary course of business, including personal injury and indemnification claims, intellectual property claims, labor and employment claims, threatened claims, breach of contract claims, and other matters, class action lawsuits, and actions brought by government authorities, alleging violations of employment classification laws, labor and other laws that would apply to employees, consumer protection laws, data protection laws, or other laws. In addition, in the ordinary course of business, the Company’s Trust & Safety team receives claims pursuant to the Rover Guarantee program, as well as claims and threats of legal action that arise from pet sitting services booked through the Company’s website and/or applications. Various parties have from time to time claimed and may claim in the future, that the Company is liable for damages related to accidents or other incidents involving pets, pet parents, pet service providers, and third parties.
The Company is involved in a number of legal proceedings concerning matters arising in connection with the conduct of its business activities, some of which are at preliminary stages and some of which seek an indeterminate amount of damages. The Company regularly evaluates the status of legal proceedings in which it is involved to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred to determine if accruals are appropriate. The Company accrues a liability when management believes information available prior to the issuance of the consolidated financial statements indicates it is probable a loss has been incurred as of the date of the consolidated financial statements and the amount of loss can be reasonably estimated. For the cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in preliminary stages; (ii) specific damage amounts have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; or (v) there are significant factual issues to be resolved. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal costs are expensed as incurred. Although the results of litigation and claims are inherently unpredictable, management concluded, based on currently available information, that there was not a reasonable possibility that it had incurred a material and estimable loss during the periods presented related to such loss contingencies. Therefore, the Company has not recorded a reserve for any contingencies, including the legal proceedings discussed below.
On August 22, 2018, a pet service provider filed a representative action under California’s Private Attorney General Act (“PAGA”) in California Superior Court, captioned Erika Miller v. A Place for Rover, Inc., alleging that the Company misclassified pet care providers in California as independent contractors in violation of the California Labor Code and alleging various wage and hour claims under the California Labor Code. The plaintiff is seeking injunctive relief, civil penalties, attorney’s fees, and other forms of relief. The Company removed the case to the U.S. District Court for the Northern District of California. Another pet service provider was substituted as the plaintiff in the case, captioned Melanie Sportsman v. A Place for Rover, Inc. On May 6, 2021, the court granted the Company’s motion for summary judgment and entered judgment in the Company’s favor, closing the case. On May 28, 2021, the plaintiff filed a notice of appeal of the court’s dismissal with the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). The plaintiff has filed her appellate brief with the Ninth Circuit and the Company’s brief was filed in March 2022. The Company has denied the allegations of wrongdoing and intends to continue to vigorously defend against the claims in this lawsuit on appeal. The Company does not currently believe that a material loss related to this lawsuit is probable.
On October 26, 2021, a pet service provider filed a putative class action complaint in the Superior Court of California, Los Angeles County, captioned Claire Rainey v. A Place for Rover, Inc., alleging that the Company misclassified pet care providers in California as independent contractors in violation of the California Labor Code, and alleged various wage and hour claims under the California Labor Code and unfair competition claims under the Business and Professions Code. The plaintiff is seeking injunctive relief, compensatory damages, civil penalties, attorney’s fees, and other forms of relief. On January 19, 2022, the Company removed the class action to the U.S. District Court for the Central District of California, where it is now pending. On January 21, 2022, the same plaintiff filed, but has not served, a representative action under PAGA in the Superior Court of California, Los Angeles
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
County, captioned Claire Rainey v. A Place for Rover, Inc., alleging that the Company misclassified pet care providers in California as independent contractors in violation of the California Labor Code and alleging various wage and hour claims under the California Labor Code. The plaintiff is seeking civil penalties under PAGA, attorney’s fees, and other forms of relief. On March 18, 2022, the Company removed the PAGA lawsuit to the U.S. District Court for the Central District of California, where it is now pending. The Company has denied or intends to deny the allegations of wrongdoing and intends to vigorously defend against the claims in these lawsuits. The Company does not currently believe that a material loss related to these lawsuits is probable.
Given the inherent uncertainties of litigation, the ultimate outcome of the ongoing matters cannot be predicted with certainty. While litigation is inherently unpredictable, the Company believes it has valid defenses with respect to the legal matters pending against it. Nevertheless, the consolidated financial statements could be materially adversely affected in a particular period by the resolution of one or more of these contingencies. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved; and such changes are recorded in the accompanying consolidated statements of operations during the period of the change and reflected in accrued and other current liabilities on the accompanying consolidated balance sheets. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
In addition, the Company may also find itself at greater risk to outside party claims or regulatory actions as it increases and continues its operations in jurisdictions where the laws with respect to the potential liability of online marketplaces or the employment classification of service providers who use online marketplaces are uncertain, unfavorable or unclear.
Additionally, from time to time, the Company may become subject to audit by taxing authorities or subject to other forms of inspection or audit. Due to the uncertainties inherent in the final outcome of such matters, the Company can give no assurance that it will prevail in such matters, which could have an adverse effect on the Company’s business. As of December 31, 2021 and 2020, the Company was not aware of any currently pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on its consolidated financial statements.
12. Employee Benefit Plan
The Company has established a 401(k) tax-deferred savings plan covering all employees who satisfy certain eligibility requirements. The 401(k) plan allows each participant to defer a percentage of their eligible compensation subject to applicable annual limits pursuant to the limits established by the Internal Revenue Service (“IRS”). The Company may, at its discretion, make contributions in the form of matching contributions, subject to limitations imposed by the IRS. The Company made matching contributions of $0.5 million during the year ended December 31, 2021. As of December 31, 2020, the Company had not made any matching contributions.
13. Stockholders’ Equity (Deficit)
Common Stock
On August 2, 2021, the Company’s Class A common stock and Public Warrants began trading on the Nasdaq Global Market under the ticker symbols “ROVR” and “ROVRW,” respectively. Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue 990,000,000 shares of Class A common stock with a par value of $0.0001 per share. As of December 31, 2021, the Company had 177.3 million shares of Class A common stock issued and outstanding.
Prior to the Merger, Legacy Rover had outstanding shares of Series A, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series G redeemable convertible preferred stock. Upon the Closing, each share of Legacy Rover redeemable convertible preferred stock was converted to one share of Legacy Rover common stock. Holders of the outstanding Legacy Rover common stock received shares of the Company’s Class A common stock in an amount determined by application of the Exchange Ratio, as discussed in Note 3—Reverse Recapitalization.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The Company had reserved shares of Class A common stock for issuance, on an as-converted basis, as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Conversion of redeemable convertible preferred stock | — | | | 90,814 | |
Common stock warrants outstanding | — | | | 1,118 | |
Private Warrants | 2,574 | | | — | |
Public Warrants | 5,500 | | | — | |
Rover Earnout Shares | 2,193 | | | — | |
Sponsor Earnout Shares | 492 | | | — | |
Stock options issued and outstanding | 18,058 | | | 24,700 | |
Shares available for future equity grants | 14,083 | | | 5,199 | |
Total | 42,900 | | | 121,831 | |
Preferred Stock
Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue 10,000,000 shares of preferred stock having a par value of $0.0001 per share. The Company’s board of directors has the authority to issue preferred stock and to determine the rights, preferences, privileges, and restrictions, including voting rights, of those shares. As of December 31, 2021, no shares of preferred stock were issued and outstanding.
The Company had outstanding redeemable convertible preferred stock as of December 31, 2020 as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Authorized | | Shares Issued and Outstanding | | Issuance Price Per Share | | Net Carrying Value | | Liquidation Preference |
Series A | 8,710 | | | 9,040 | | | $ | 0.4478 | | | $ | 3,325 | | | $ | 4,048 | |
Series B | 14,104 | | | 14,639 | | | 0.6528 | | | 9,397 | | | 9,556 | |
Series C | 12,431 | | | 12,903 | | | 1.1238 | | | 14,596 | | | 14,500 | |
Series D | 7,677 | | | 7,968 | | | 2.0080 | | | 14,036 | | | 16,000 | |
Series D-1 | 3,359 | | | 3,486 | | | 2.0078 | | | 6,981 | | | 7,000 | |
Series E | 11,021 | | | 11,439 | | | 3.4969 | | | 39,906 | | | 40,000 | |
Series F | 11,772 | | | 12,218 | | | 5.3199 | | | 64,833 | | | 65,000 | |
Series G | 18,537 | | | 19,121 | | | $ | 7.2536 | | | 137,353 | | | 138,698 | |
Total | 87,611 | | | 90,814 | | | | | $ | 290,427 | | | $ | 294,802 | |
As of December 31, 2021 all redeemable convertible preferred stock had been converted to Class A common stock of the Company.
Dividend
Class A common stock is entitled to dividends when and if declared by the Company’s board of directors, subject to the rights of all classes of stock outstanding having priority rights to dividends. The Company has not paid any cash dividends on common stock to date. The Company may retain future earnings, if any, for the further development and expansion of its business and has no current plans to pay cash dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of the Company’s board of directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as the Company’s board of directors may deem relevant.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
14. Stock Warrants
Public and Private Warrants
Prior to the Merger, Caravel issued 5,166,667 Private Warrants and 5,500,000 Public Warrants in connection with its initial public offering. Upon the Closing of the Merger, 2,592,503 Private Warrants were forfeited. 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 became exercisable on December 11, 2021 and expire on July 30, 2026, at 5:00 p.m. New York City time, or earlier upon redemption or liquidation.
Once the Public Warrants become exercisable, the Company may redeem the outstanding warrants, in whole and not in part, upon a minimum of 30 days’ prior written notice of redemption (“Redemption Period”).
The Company may redeem the outstanding Public Warrants for cash at a price of $0.01 per warrant if the Redemption Trigger Price equals or exceeds $18.00 per share and if there is an effective registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants, and a current prospectus relating thereto, available throughout the 30-day Redemption Period. The warrant holders have the right to exercise their outstanding Public Warrants prior to the scheduled redemption date during the Redemption Period at $11.50 per share. If the Company calls the Public Warrants for redemption, the Company will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis”, as described in the Warrant Agreement, dated December 8, 2020 (as amended on December 10, 2021, the “Warrant Agreement”). For purposes of the redemption, “Redemption Trigger Price” shall mean the last reported sales price of the Company’s Class A common stock for any twenty trading days within the thirty trading-day period ending on the third trading day prior to the date on which notice of the redemption is given.
The Private Warrants are identical to the Public Warrants except that the Private Warrants are not transferable, assignable or salable until 30 days after the completion of the Merger, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable on a cashless basis and are non-redeemable in accordance with the preceding paragraph so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees then such warrants will be redeemable by the Company and exercisable by the warrant holders on the same basis as the Public Warrants in accordance with the preceding paragraph.
The Company is also entitled to redeem all of the outstanding Public Warrants at a redemption price of $0.10 per warrant if the last reported sales price of the Class A common stock equals or exceeds $10.00 per share on the trading day prior to the date on which a notice of redemption (the “Redemption Notice”) is sent to the registered holders of the Public Warrants. In addition, if the last reported sales price of the Class A common stock for any 20 trading days within the 30-trading day period ending on the third trading day prior to the date on which a Redemption Notice is sent to the registered holders of the Public Warrants is less than $18.00 per share, the Private Warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants.
On September 14, 2021, the Company filed a Registration Statement on Form S-1, which became effective on September 23, 2021. This Registration Statement relates to, among other things, the registration of the offer and sale of the Private Warrants and the issuance of an aggregate of up to 8,074,164 shares of Class A common stock underlying the Public Warrants and Private Warrants.
Upon consummation of the Merger, the Company evaluated the Public Warrants and Private Warrants (collectively, the “Warrants”) and concluded that they do not meet the criteria to be classified within stockholders’ equity (deficit). On the consummation of the Merger, the Company recorded a liability related to the Warrants of $22.0 million, with an offsetting entry to additional paid-in capital. See Note 7—Fair Value for further information. The Company recognized a gain of $2.1 million for the year ended December 31, 2021, classified within change in fair value of derivative warrant liabilities in the consolidated statements of operations. On December 13, 2021, the Company announced that, pursuant to the terms of the Warrant Agreement, it would redeem all of the outstanding Public Warrants and Private Warrants based on the terms in the Warrant Agreement. On January 12, 2022 (the “Redemption Date”), any Warrants that remained unexercised became void and no longer
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
exercisable, and the holders of those Warrants were entitled to receive only the redemption price of $0.10 per Warrant (the “Redemption Price”). See Note 19—Subsequent Events. As of December 31, 2021, there were 8,074,144 Warrants outstanding, and 1,362,540 Public Warrants had been submitted for exercise in connection with the Company’s redemption of all outstanding Public and Private Warrants.
Other Common Stock Warrants
Legacy Rover also issued common stock warrants to various service providers, lenders, and investors, at various points in time, which were subsequently converted to common stock warrants of the Company. Upon consummation of the Merger, each Legacy Rover warrant that was outstanding was assumed by Caravel and converted into a common stock warrant exercisable for Class A common stock equal to the product (rounded down to the nearest whole number) of (1) the number of shares of Legacy Rover capital stock subject to the Legacy Rover warrant immediately prior to the Merger multiplied by (2) the Exchange Ratio. Such warrants have a per share exercise price equal to the quotient (rounded up to the nearest whole cent) obtained by dividing (1) the exercise price per share of Legacy Rover capital stock subject to the Legacy Rover warrant immediately prior to the Merger by (2) the Exchange Ratio, and, except as specifically provided in the Merger Agreement, each warrant continues to be governed by the same terms and conditions (including vesting and exercise terms) as were applicable to the corresponding former Legacy Rover warrant immediately prior to the Merger.
Upon the Closing of the Merger, warrants to purchase 631,000 shares of common stock were net exercised resulting in the issuance of 448,000 shares of Class A common stock.
As of December 31, 2021, there were 0 other common stock warrants outstanding.
15. Stock-Based Compensation
2011 Equity Incentive Plan
Legacy Rover’s 2011 Equity Incentive Plan (the “2011 Plan’’) allowed Legacy Rover to grant incentive and non-qualified stock options, restricted stock and other stock-based awards to employees, non-employees, and directors of Legacy Rover. In connection with the Closing of the Merger, the 2011 Plan was terminated, the remaining unallocated share reserve under the 2011 Plan was canceled and no new awards will be granted under the 2011 Plan. Options exercisable for 20.4 million shares of Class A common stock outstanding under the 2011 Plan at Closing were assumed by the Company under the 2021 Plan (defined below).
2021 Equity Incentive Plan
In connection with the Closing of the Merger, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”) under which 17.2 million shares of Class A common stock were initially reserved for issuance, plus up to 20.4 million shares subject to stock options that were assumed in the Merger and expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest. The 2021 Plan permits the grant of incentive and non-qualified stock options, restricted stock, restricted stock units and other stock-based awards to employees, directors, and consultants of the Company. As of December 31, 2021, the Company had 14.1 million shares of Class A common stock reserved for future issuance under the 2021 Plan, which includes shares subject to stock options that were assumed in the Merger that expired or otherwise terminated without having been exercised in full or were forfeited due to failure to vest.
Upon the Closing, each option to purchase shares of Legacy Rover common stock that was outstanding, whether vested or unvested, was automatically converted into an option to purchase shares of the Company’s Class A common stock with the same terms except for the number of shares exercisable and the exercise price, using the exchange ratio of 1.2006 (“Option Exchange Ratio”). For periods prior to the Merger, the number of options and per share amounts have been retroactively converted by applying the Option Exchange Ratio.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
Equity Awards Available for Grant
A summary of equity awards available for grant is as follows (in thousands):
| | | | | |
| Equity Available for Grant |
Balances as of December 31, 2019 | 3,410 | |
Retroactive application of reverse recapitalization | 684 | |
Balance as of December 31, 2019, as converted | 4,094 | |
Options authorized | 1,801 | |
Options granted(1) | (11,258) | |
Options canceled and forfeited(1) | 10,562 | |
Balances as of December 31, 2020 | 5,199 | |
Equity awards authorized | 17,200 | |
Equity awards granted | (3,348) | |
Equity awards canceled in connection with termination of 2011 Plan | (7,005) | |
Equity awards canceled and forfeited | 2,037 | |
Balances as of December 31, 2021 | 14,083 | |
________________
(1)Includes options that were canceled and re-granted as part of the option repricing modification, as further discussed below.
Stock Options
A summary of stock option activity is as follows (in thousands, except per share amounts and years):
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options Outstanding | | Weighted- Average Exercise Price Per Share | | Weighted- Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
Balances as of December 31, 2019 | 20,749 | | | $ | 1.98 | | | 7.1 | | $ | 34,776 | |
Retroactive application of reverse recapitalization | 4,162 | | | | | | | |
Balance as of December 31, 2019, as converted | 24,911 | | | 1.65 | | | 7.1 | | $ | 34,776 | |
Options granted(1) | 11,258 | | | 2.08 | | | | | |
Options exercised | (907) | | | 0.85 | | | | | |
Options canceled and forfeited(1) | (10,562) | | | 2.67 | | | | | |
Balances as of December 31, 2020 | 24,700 | | | $ | 1.45 | | | 6.4 | | $ | 83,570 | |
Options exercised | (4,634) | | | 0.93 | | | | | |
Options canceled and forfeited | (2,008) | | | 1.17 | | | | | |
Balances as of December 31, 2021 | 18,058 | | | $ | 1.60 | | | 6.1 | | $ | 147,219 | |
Options vested and exercisable – December 31, 2021 | 14,342 | | | $ | 1.48 | | | 5.6 | | $ | 118,563 | |
________________
(1)Includes options that were canceled and re-granted as part of the option repricing modification, as further discussed below.
The weighted-average grant-date fair value of options granted during the years ended December 31, 2020 and 2019 was $0.59 and $1.51, respectively. There were no options granted during the year ended December 31, 2021.
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2021, 2020, and 2019 was $40.9 million, $2.4 million and $2.1 million, respectively.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The fair value of options vested during the years ended December 31, 2021, 2020, and 2019 was $3.9 million, $5.0 million and $4.1 million, respectively.
The following table presents the range of assumptions used to estimate the fair value of options granted during the periods presented:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
Risk-free interest rate | 0.24% - 1.43% | | 1.38% - 2.60% |
Expected term (years) | 3.99 - 6.80 | | 4.51 - 6.75 |
Volatility | 49.0% - 54.8% | | 44.5% - 46.3% |
Dividend yield | — | % | | — | % |
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time the options are granted for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the option.
Expected Term—The expected term is based upon the Company’s consideration of the historical life of options, the vesting period of the option granted, and the contractual period of the option granted. The Company has a limited history of granting options, accordingly, the expected life was calculated using the simplified method.
Volatility—The expected volatility for the Company’s stock options was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected term of the awards.
Dividend Yield—The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Restricted Stock Units
RSUs are measured at the fair market value of the underlying stock at the grant date and the expense is recognized over the requisite service period. The service-based vesting condition for these awards is generally satisfied over four years. A summary of restricted stock unit activity is as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted- Average Grant Date Fair Value | | Aggregate Intrinsic Value |
Unvested January 1, 2021 | — | | | $ | — | | | |
Granted | 3,348 | | | 12.05 | | | |
Vested | (456) | | | 12.25 | | | |
Forfeited | (29) | | | 12.15 | | | |
Unvested December 31, 2021 | 2,863 | | | 12.02 | | | $ | 27,919 | |
The total fair value of RSUs vested during the year ended December 31, 2021 was $5.6 million.
Stock-Based Compensation
The following table summarizes stock-based compensation expense recorded in each component of costs and expenses in the Company’s consolidated statements of operations for the presented periods (in thousands):
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Operations and support | $ | 545 | | | $ | 299 | | | $ | 277 | |
Marketing | 725 | | | 397 | | | 301 | |
Product development | 3,821 | | | 1,873 | | | 1,486 | |
General and administrative | 5,970 | | | 2,972 | | | 2,003 | |
Total stock-based compensation expense | $ | 11,061 | | | $ | 5,541 | | | $ | 4,067 | |
No income tax benefit related to stock-based compensation was recorded during the years ended December 31, 2021, 2020, and 2019 as the Company maintained a full valuation allowance against its net deferred tax assets within the United States.
As of December 31, 2021, total unrecognized compensation cost related to unvested stock options was $4.2 million, which was expected to be recognized over a weighted average remaining service period of 1.7 years.
Stock Option Modification
During the year ended December 31, 2020, the Company experienced significant disruption to its business as a result of the rapid development of COVID-19 and the corresponding reduction in the demand for its marketplace services. In response to the impact of COVID-19, the Company implemented a restructuring plan in April 2020 whereby approximately 50% of employees were terminated or placed on standby. In connection with this restructuring, the Company amended the terms of stock options previously awarded to impacted employees. For employees who were terminated as part of the restructuring, the Company allowed pro-rata vesting of pre-cliff awards up to the termination date that would have otherwise been forfeited upon termination and extended the exercise period of vested stock options from 90 days to three years from the termination date. For employees who remained employed after the restructuring, the stock options were modified based on the fair value of the Company’s common stock as determined by the board of directors.
In April 2020, the Company modified options to exercise 3,102,000 shares held by terminated employees. The Company reversed the previously recognized expense for pre-cliff awards, recorded the incremental expense based on the modification-date fair value of awards that became vested under the pro-rata acceleration, and recorded any excess between the fair value of the vested awards immediately prior to and after the modification. The Company immediately recognized net incremental expense of $0.3 million related to these options.
In July 2020, the Company modified options to exercise 6,800,000 shares held by then-current employees. The Company repriced options held by current employees with an exercise price greater than $1.99 per share. As part of the repricing, the original options were canceled and new options were granted with an exercise of $1.99 per share and a remaining contractual term of ten years. The new options were subject to the same service-based vesting schedule as the original options. The repricing was recorded as a stock option modification whereby the incremental fair value of each option was determined at the date of the modification and $0.4 million was immediately recognized related to vested options. During the years ended December 31, 2021 and 2020, the Company recognized total stock-based compensation expense of $0.4 million and $0.6 million, respectively, related to these repriced options. As of December 31, 2021, there was remaining incremental fair value of $0.3 million which will be recognized over the remaining requisite service period.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
16. Income Taxes
The following table presents the components of loss before income taxes (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
U.S. | $ | (64,394) | | | $ | (56,758) | | | $ | (48,650) | |
Foreign | 119 | | | (821) | | | (3,532) | |
Total | $ | (64,275) | | | $ | (57,579) | | | $ | (52,182) | |
The following table presents the components of the (provision for) benefit from income taxes (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current tax expense: | | | | | |
U.S. Federal | $ | — | | | $ | — | | | $ | — | |
State | (49) | | | (5) | | | (29) | |
Foreign | 3 | | | (204) | | | (91) | |
Total current | (46) | | | (209) | | | (120) | |
Deferred tax expense: | | | | | |
U.S. Federal | — | | | — | | | — | |
State | — | | | — | | | — | |
Foreign | 272 | | | 303 | | | 588 | |
Total deferred tax benefit | 272 | | | 303 | | | 588 | |
Total income tax benefit | $ | 226 | | | $ | 94 | | | $ | 468 | |
The following table presents a reconciliation of the statutory federal rate to the Company’s effective tax rate:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Federal income taxes at statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State taxes, net of federal benefit | 4.5 | | | 1.6 | | | 1.7 | |
Tax credits | 0.1 | | | 0.2 | | | 1.6 | |
Equity compensation | 8.4 | | | (0.9) | | | (1.0) | |
Nondeductible revaluation | (14.4) | | | — | | | — | |
Change in valuation allowance | (20.8) | | | (20.9) | | | (20.6) | |
Transaction costs | 1.2 | | | — | | | — | |
Other, net | 0.4 | | | (0.8) | | | (1.8) | |
Effective income tax rate | 0.4 | % | | 0.2 | % | | 0.9 | % |
The following table presents the significant components of the Company’s deferred tax assets and liabilities (in
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Net operating loss carryforward | $ | 66,151 | | | $ | 55,649 | |
Tax credit carryforward | 2,364 | | | 2,298 | |
Reserves and accruals | 1,166 | | | 909 | |
Stock based compensation | 1,551 | | | 1,011 | |
Property, plant and equipment | — | | | 214 | |
Lease liability | 6,535 | | | — | |
Intangibles | 651 | | | — | |
Other | 2,311 | | | 898 | |
Total deferred tax assets | 80,729 | | | 60,979 | |
Less: Deferred tax assets valuation allowance | (71,565) | | | (57,225) | |
Total deferred tax assets, net of valuation allowance | 9,164 | | | 3,754 | |
Deferred tax liabilities: | | | |
Capitalized internal-use software costs | (2,356) | | | (2,477) | |
Intangibles | — | | | (42) | |
Property, plant and equipment | (340) | | | — | |
Right-of-use assets | (4,991) | | | — | |
Total deferred tax liabilities | (7,687) | | | (2,519) | |
Net deferred tax assets | $ | 1,477 | | | $ | 1,235 | |
The following table presents a roll forward of the valuation allowance (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Balance at beginning of period | $ | 57,225 | | | $ | 45,180 | | | $ | 34,435 | |
Increase in valuation allowance | 14,340 | | | 12,045 | | | 10,745 | |
Balance at end of period | $ | 71,565 | | | $ | 57,225 | | | $ | 45,180 | |
As of December 31, 2021, the Company had federal net operating loss carryforwards of $271.3 million, state net operating loss carryforwards of $132.6 million and foreign net operating loss carryforwards of $5.9 million which may be available to reduce future taxable income. The gross federal net operating loss (“NOL”) carryforwards generated during and after 2018 totaling $170.7 million are carried forward indefinitely, while all others, if not utilized, will expire beginning in 2031. The gross state NOL carryforwards will expire beginning in 2025. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. The Company has recorded a full valuation allowance against its net U.S. deferred tax assets as of December 31, 2021 and 2020 because, based on the weight of available evidence, it is more-likely-than-not (a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized.
The Company is open to examination by the U.S. federal tax jurisdiction for the years ended December 31, 2018 through 2021. The Company is also open to examination for 2011 and forward with respect to U.S. federal NOL carryforwards generated and carried forward from those years. There are currently no federal or state income tax audits in process.
The NOLs are subject to review and possible adjustment by the IRS and state tax authorities. NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not yet conducted a study to determine if any such changes have occurred that could limit the Company’s ability to use the NOLs and tax credit carryforwards.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Beginning of period | $ | 574 | | | $ | 550 | | | $ | 383 | |
Current year tax position increases | 17 | | | 24 | | | 167 | |
End of period | $ | 591 | | | $ | 574 | | | $ | 550 | |
The gross unrecognized tax benefits as of December 31, 2021, 2020, and 2019, if recognized, would not affect the effective tax rate as these unrecognized tax benefits would increase deferred tax assets that would be subject to a full valuation allowance. No material changes in the gross unrecognized tax benefits are expected over the next twelve months.
17. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Numerator: | | | | | |
Net loss | $ | (64,049) | | | $ | (57,485) | | | $ | (51,714) | |
Denominator: | | | | | |
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 89,004 | | | 29,896 | | | 29,138 | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.72) | | | $ | (1.92) | | | $ | (1.77) | |
As a result of the Merger, the weighted-average number of shares of Class A common stock used in the calculation of net loss per share have been retroactively converted by applying the Exchange Ratio.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The following potentially dilutive shares were not included in the calculation of diluted shares outstanding for the periods presented as the effect would have been anti-dilutive (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Redeemable convertible preferred stock | — | | | 90,814 | | | 90,805 | |
Outstanding stock options | 18,058 | | | 24,700 | | | 24,911 | |
Unvested RSUs | 2,863 | | | — | | | — | |
Outstanding common stock warrants | — | | | 1,118 | | | 790 | |
Private Warrants | 2,574 | | | — | | | — | |
Public Warrants | 4,137 | | | — | | | — | |
Sponsor Earnout Shares | 492 | | | — | | | — | |
Total | 28,124 | | | 116,632 | | | 116,506 | |
The 2,192,687 remaining unvested Rover Earnout Shares are excluded from basic and diluted net loss per share as such shares are contingently issuable until the share price of the Company’s common stock exceeds specified thresholds that have not been achieved as of December 31, 2021.
18. Restructuring
In response to the impact of COVID-19, the Company implemented a restructuring plan in April 2020 whereby approximately 50% of employees were terminated or placed on standby. In connection with this restructuring, the Company incurred total severance-related and legal costs of $3.8 million, as well as modified the terms of stock options previously awarded to impacted employees (see Note 15—Stock-Based Compensation). As of December 31, 2020, there was no remaining liability for restructuring-related costs. The following table summarizes restructuring charges recorded in each component of costs and expenses in the Company’s consolidated statements of operations (in thousands):
| | | | | |
| Year Ended December 31, 2020 |
Operations and support | $ | 796 | |
Marketing | 593 | |
Product development | 1,743 | |
General and administrative | 631 | |
Total restructuring charges | $ | 3,763 | |
There were no restructuring charges recorded in costs and expenses in the Company’s consolidated statements of operations for the year ended December 31, 2021.
19. Subsequent Events
In January 2022 the Company issued 2,046,220 shares of Class A common stock related to the December 2021 and January 2022 cashless exercise of 5,425,349 Public Warrants and 2,574,164 Private Warrants, representing approximately 98.6% of the Public Warrants and 100% of the Private Warrants, respectively. Holders of Warrants received 0.2558 shares of Class A common stock per Warrant in lieu of receiving a redemption price of $0.10 per Warrant. A total of 74,631 Public Warrants remained unexercised after the Redemption Date and broker protect period and the Company redeemed those unexercised Public Warrants. Pursuant to the redemption, the Public Warrants ceased trading on The Nasdaq Global Market effective as of the close of trading on the Redemption Date, and were delisted after market close on the Redemption Date. As of the month ended January 31, 2022, Rover had no Warrants outstanding.
A PLACE FOR ROVER, INC
Notes to Consolidated Financial Statements
The Warrants were classified as liability prior to exercise and redemption and measured at fair value with the change in fair value reported in the statement of operations. Upon the exercise of such Warrants to Class A common stock, the related carrying amount of the warrant liability was reclassified to stockholders’ equity.
91,476,337 Shares of Class A Common Stock
PROSPECTUS
, 2022
You should rely only on the information contained in this prospectus or any supplement or amendment hereto. We have not authorized anyone to provide you with different information. You should not assume that the information contained in this prospectus or any supplement or amendment hereto is accurate as of any date other than the date of this prospectus or any such supplement or amendment. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses to be paid by us in connection with the issuance and distribution of the shares of Class A Common Stock being registered by this registration statement. All amounts shown are estimates except for the SEC registration fee.
We will bear all costs, expenses and fees in connection with the registration of the securities. Selling Securityholders, however, will bear all brokers and underwriting commissions and discounts, if any, attributable to their sale of the Securities.
| | | | | |
| Amount |
SEC registration fee | $ | 154,478 | |
Accounting fees and expenses | $ | 200,000 | |
Legal fees and expenses | $ | 335,000 | |
Financial printing and miscellaneous expenses | $ | 205,000 | |
Total | $ | 894,478 | |
Item 14. Indemnification of Directors and Officers
Section 102(b)(7) of the Delaware General Corporation Law (DGCL) allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our amended and restated certificate of incorporation provides for this limitation of liability.
Section 145 of the DGCL, provides, among other things, that a Delaware corporation may indemnify any person who was, is or is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful. A Delaware corporation may indemnify any persons who were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests, provided further that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) which such officer or director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify such person under Section 145.
Our Bylaws provide that we must indemnify and advance expenses to our directors and officers to the full extent authorized by the DGCL.
We have entered into indemnification agreements with each of our directors and executive officers. Such agreements may require us, among other things, to advance expenses and otherwise indemnify our executive officers and directors against certain liabilities that may arise by reason of their status or service as executive officers or directors, to the fullest extent permitted by law.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, any provision of our Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Notwithstanding the foregoing, we shall not be obligated to indemnify a director or officer in respect of a proceeding (or part thereof) instituted by such director or officer, unless such proceeding (or part thereof) has been authorized by the Board pursuant to the applicable procedure outlined in our Bylaws.
Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held jointly and severally liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the Board at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
We currently maintain and expect to continue to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions, the insurance, and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.
Item 15. Recent Sales of Unregistered Securities
Since March 21, 2019, Rover Group, Inc. (f/k/a Nebula Caravel Acquisition Corp.) has issued the following unregistered securities:
In September 2020, in connection with the initial formation of Caravel, the Sponsor purchased an aggregate of 7,906,250 shares of Class B Common Stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or approximately $0.003 per share. In September and October 2020, the Sponsor transferred 25,000 Founder Shares to each of Messrs. Kerko, Wagner, Thompson and Ms. Wellman, Caravel’s independent director nominees, in each case at the original per share purchase price. On November 18, 2020, the Sponsor cancelled 718,750 Founder Shares and in December 2020 following the Caravel IPO, the Sponsor forfeited 312,500 Founder Shares, resulting in the Sponsor holding an aggregate of 6,775,000 Founder Shares. The number of Founder Shares issued was determined based on the expectation that the Founder Shares would represent 20% of the outstanding shares of Caravel common stock upon completion of the Caravel IPO.
On December 11, 2020, in connection with the closing of the Caravel IPO, Caravel consummated a private placement of an aggregate of 5,166,667 Private Placement Warrants at a price of $1.50 per Private Placement Warrant, generating total proceeds of approximately $7,800,000. Each Private Placement Warrant entitled the holder
thereof to purchase one share of Caravel Class A Common Stock at a price of $11.50 per share, subject to adjustment.
On July 30, 2021, True Wind Capital II, L.P. and True Wind Capital II-A, L.P. (together, the “TWC Funds”) purchased from the Company an aggregate of 8,000,000 shares of Class A Common Stock, for a purchase price of $10.00 per share (the “Backstop Shares”), and an aggregate purchase price of $80.0 million pursuant to that certain backstop subscription agreement entered into as of February 10, 2021 (the “Sponsor Backstop Subscription Agreement”). Pursuant to the Sponsor Backstop Subscription Agreement, the TWC Funds agreed to purchase shares of the Company’s Class A Common Stock in an aggregate amount of up to $50.0 million (or such greater amount at the election of the TWC Fund) to the extent of the amount of any redemption of shares of Class A Common Stock and an additional amount of up to $50.0 million if mutually agreed with Legacy Rover. The sale of Backstop Shares was consummated concurrently with the Closing of the Merger.
On July 30, 2021, BBCM Master Fund Ltd., a Delaware limited partnership (“Broad Bay”), purchased from the Company an aggregate of 1,000,000 shares of Class A Common Stock for a purchase price of $10.00 per share (the “Assigned Shares”) and an aggregate purchase price of $10.0 million pursuant to an assignment and assumption agreement entered into between Broad Bay, TWC Funds, and Caravel on July 26, 2021 (the “Assignment Agreement”).
In connection with the consummation of the Merger, on July 30, 2021, a number of accredited investor purchasers (each, a “PIPE Investor”) purchased from the Company an aggregate of 5,000,000 shares of Class A Common Stock (the “PIPE Investment”), for a purchase price of $10.00 per share and an aggregate purchase price of $50.0 million (the “PIPE Shares”), pursuant to separate subscription agreements (each, a “PIPE Subscription Agreement”) entered into effective as of February 10, 2021. Pursuant to the PIPE Subscription Agreements, the Company gave certain registration rights to the PIPE Investors with respect to the PIPE Shares.
We believe the offers, sales and issuances of the above securities were exempt from registration under the Securities Act (or Regulation D or Regulation S promulgated thereunder) by virtue of Section 4(a)(2) of the Securities Act because the issuance of securities to the recipients did not involve a public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
Following the closing of the Merger on July 30, 2021 through October 4, 2021 when the Company filed a registration statement on Form S-8, the Company issued an aggregate of 491,911 shares of Class A Common Stock through the exercise of outstanding stock options by current and former employees and officers, for which the Company received approximately $766,000. Such share issuances were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates. The recipients had adequate access, through their relationships with the Company, to information about the Company.
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by reference |
Exhibit No. | | Description | | Form | | File No. | | Exhibit No. | | Filing Date | | Filed or Furnished Herewith |
2.1† | | | | 424(b)(3) | | 333-253110 | | Annex A | | July 9, 2021 | | |
3.1 | | | | 8-K | | 001-39774 | | 3.1 | | August 5, 2021 | | |
3.2 | | | | 10-Q | | 001-39774 | | 3.2 | | November 9, 2021 | | |
4.1 | | | | 8-K | | 001-39774 | | 4.1 | | August 5, 2021 | | |
4.2 | | | | 8-K | | 001-39774 | | 4.1 | | December 11, 2020 | | |
4.3 | | | | 8-K | | 001-39774 | | 4.1 | | December 13, 2021 | | |
5.1* | | | | S-1 | | 333-259519 | | 5.1 | | September 14, 2021 | | |
10.1 | | | | 8-K | | 001-39774 | | 10.1 | | February 11, 2021 | | |
10.2 | | | | 8-K | | 001-39774 | | 10.2 | | February 11, 2021 | | |
10.3 | | | | 8-K | | 001-39774 | | 10.3 | | August 5, 2021 | | |
10.4 | | | | 8-K | | 001-39774 | | 10.3 | | February 11, 2021 | | |
10.5 | | | | 8-K | | 001-39774 | | 10.4 | | February 11, 2021 | | |
10.6 | | | | 8-K | | 001-39774 | | 10.5 | | February 11, 2021 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10.7 | | | | 8-K | | 001-39774 | | 10.6 | | February 11, 2021 | | |
10.8# | | | | S-4/A | | 333-253110 | | 10.7 | | May 20, 2021 | | |
10.9# | | | | S-4/A | | 333-253110 | | 10.8 | | May 20, 2021 | | |
10.10# | | | | S-4/A | | 333-253110 | | 10.9 | | May 20, 2021 | | |
10.11# | | | | S-4/A | | 333-253110 | | 10.12 | | May 20, 2021 | | |
10.12# | | | | S-1 | | 333-260937 | | 10.12 | | November 10, 2021 | | |
10.13# | | | | S-1 | | 333-260937 | | 10.13 | | November 10, 2021 | | |
10.14# | | | | S-8 | | 333-260105 | | 99.5 | | October 7, 2021 | | |
10.15# | | | | 8-K | | 001-39774 | | 10.16 | | August 5, 2021 | | |
10.16# | | | | 8-K | | 001-39774 | | 10.17 | | August 5, 2021 | | |
10.17# | | | | S-8 | | 333-260105 | | 99.2 | | October 7, 2021 | | |
10.18# | | | | 10-K | | 001-39774 | | 10.18 | | March 21, 2022 | | |
10.19# | | | | S-8 | | 333-260105 | | 99.3 | | October 7, 2021 | | |
10.20# | | | | S-8 | | 333-260105 | | 99.6 | | October 7, 2021 | | |
10.21# | | | | 10-K | | 001-39774 | | 10.21 | | March 21, 2022 | | |
10.22# | | | | 8-K | | 001-39774 | | 10.1 | | March 7, 2022 | | |
21.1 | | | | 10-K | | 001-39774 | | 21.1 | | March 21, 2022 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
23.1 | | | | | | | | | | | | X |
23.2* | | | | S-1 | | 333-259519 | | 5.1 | | September 14, 2021 | | |
24.1* | | | | S-1 | | 333-259519 | | 24.1 | | September 14, 2021 | | |
101.INS | | Inline XBRL Instance Document | | | | | | | | | | X |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | | | X |
107 | | | | | | | | | | | | X |
________________
†Schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibi t will be furnished to the SEC upon request.
* Previously filed.
# Indicates management contract or compensatory plan or arrangement.
(b)Financial Statement Schedules
All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the accompanying notes. The financial statements filed as part of this registration statement are listed in the index to the financial statements immediately preceding such financial statements, which index to the financial statements is incorporated herein by reference. (c)Calculation of Filing Fees Table.
The Calculation of Filing Fees Table is filed as Exhibit 107 to this POSAM and is incorporated herein by reference. Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1.To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
a.To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended;
b.To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
c.To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
provided, however, that paragraphs (1)(a), (b) and (c) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the Registration Statement.
2.That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3.To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4.That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5.That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
a.Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
b.Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
c.The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
d.Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Seattle, State of Washington, on March 21, 2022.
| | | | | |
ROVER GROUP, INC. |
| |
By: | /s/ Tracy Knox |
| Tracy Knox |
| Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
Signature | | Title | | Date |
| | | | |
/s/ Aaron Easterly | | Chief Executive Officer and Director (Principal Executive Officer) | | March 21, 2022 |
Aaron Easterly | | | |
| | | | |
/s/ Tracy Knox | | Chief Financial Officer (Principal Financial and Accounting Officer) | | March 21, 2022 |
Tracy Knox | | | |
| | | | |
* | | Director | | March 21, 2022 |
Susan Athey | | | | |
| | | | |
* | | Director | | March 21, 2022 |
Venky Ganesan | | | | |
| | | | |
* | | Director | | March 21, 2022 |
Greg Gottesman | | | | |
| | | | |
* | | Director | | March 21, 2022 |
Scott Jacobson | | | | |
| | | | |
* | | Director | | March 21, 2022 |
Megan Siegler | | | | |
| | | | |
* | | Director | | March 21, 2022 |
Kristina Leslie | | | | |
| | | | |
* | | Director | | March 21, 2022 |
Adam Clammer | | | | |
| | | | | |
*By: | /s/ Tracy Knox |
| Tracy Knox |
| Attorney-in-Fact |
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