A bunch of companies that pledge to break even or better on an adjusted EBITDA basis this year will actually be in the red using more standard financial measures. These financial makeovers are very much in vogue.
HomeToGo, the Germany-based vacation rental business that went public in Frankfurt in 2021, said this week that it has started strongly in 2023 and is on track to break even this year.
One reason for the optimism is the company announced Wednesday that it had a much greater backlog of bookings at the beginning of 2023 than a year earlier. The booking backlog of $34.5 million (euro 32.5 million) as 2023 kicked off amounted to a 72 percent year-over-year increase.
Chief financial officer Steffen Schneider told Skift HomeToGo took numerous steps to get to the point where it would break even on an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis this year.
“One key piece of this has been our clear focus on an efficient marketing strategy to drive and scale repeat demand,” Schneider said. “In terms of operating measures, we have optimized our resource allocation and paced our overhead investments — this is combined with savings from lifting valuable synergy potentials with our subsidiaries from our key acquisitions.”
Among the synergies, HomeToGo consolidated contracts within the group, and “offered new, engaging add-on services to drive revenues,” he added.
In preliminary fourth quarter results, HomeToGo said revenue from its subscription and services business, which offers technology solutions to vacation rental partners, increased 186 percent in the fourth quarter to $7.75 million (euro 7.3 million). Overall, booking revenue jumped 32 percent year over year in the fourth quarter to $32.5 (euro 30.6 million).
HomeToGo issued 2022 guidance of an adjusted EBITDA loss for the full year of $21.2 million to $26.5 million (euro 20 million to euro 25 million).
It is important to note that a slew of newly public companies are pledging a break-even year or profitability in 2023 on an adjusted EBITDA basis. These forecasts are not, in the case of HomeToGo, on a more rigorous International Financial Reporting Standards basis, or for Sonder and Vacasa, for example, on a Generally Accepted Accounting Principles (GAAP) basis.
The problem with adjusted EBITDA reporting is that there is no standard definition for it, and companies therefore define it differently in terms of what they include or exclude to make themselves appear more attractive to investors.
HomeToGo, for example, excludes share-based compensation and what it considers to be one-time items from its adjusted EBITDA numbers.
In the third quarter, for instance, among the expenses HomeToGo excluded from its adjusted EBITDA number was $6.5 million (euro 6.1 million) in share-based compensation, and roughly $1 million (euro 1 million) in one-off items to get to its adjusted EBITDA mark of euro 24.1 million.
In the third quarter, HomeToGo notched a net profit of $13.2 million (euro 12.5 million), but it will be in the red for full-year 2022.
Property manager Sonder, in its adjusted EBITDA calculations, excludes depreciation, stock-based compensation, certain Covid-19-related property off-boardings, and restructuring charges. In Sonder’s third quarter, the company excluded some $15 million in expenses for stock-based compensation and “other” expenses to get to an adjusted EBITDA loss of $48.7 million. That compared to a more standard GAAP net loss of $74.5 million.
A little more than a year from now, when full-year 2023 financial results pour in, it will be interesting to see how these companies’ adjusted EBITDA marks, assuming they will be in positive or break-even territory, compare to more widely accepted net income or net loss measures.
Photo credit: HomeToGo reported an ample number of vacation rental reservations on the books at the start of 2023. Pictured is Villa Karma, Costa del Sol. Onefinestay