It is now my pleasure to introduce your host, Denise Garcia of ICR. Thank you. You may begin.

Transcription

1 Care.com First Quarter 2015 Earnings Results Conference Call May 12, 2015 Greetings. Welcome to the Care.com First Quarter 2015 Earnings Results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Denise Garcia of ICR. Thank you. You may begin. Denise Garcia: Thank you Christine. Good morning and welcome to Care.com s financial results call for the fiscal quarter and year ended March 28, 2015 During the course of this conference call, we will discuss our business outlook and make other forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of These may include, among other things, projected financial results or operating metrics, anticipated business and marketing investments and strategies and expected results of those investments and strategies, anticipated future products or services, anticipated market demand or opportunities for our products and services and other forward-looking topics. Such statements are only predictions based on Management s current expectations. Actual results or events could differ materially from those predictions due to a number of risks and uncertainties, including those set forth in the press release we issued this morning, as well as those more fully described in our filings with the Securities and Exchange Commission. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change; therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. We will also be referring to non-gaap measures on this call, including Adjusted EBITDA, which we refer to as EBITDA throughout this presentation. EBITDA represents pre-tax net loss, less depreciation and amortization, as well as certain other non-cash adjustments. These non-gaap measures are not prepared in accordance with generally accepted accounting principles. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release and Form 8-K filed this morning.

2 Today s call is available via webcast and a telephone replay will be available for one week following the conclusion of the call. To access the press release, supplemental and financial information or the webcast replay, please consult the IR section of Care.com. With that, let me turn the call over to Sheila Lirio Marcelo, Founder, Chairwoman, and CEO of Care.com. Thanks, Denise. Good morning. Thank you all for joining us today. I ll walk you through our first quarter financial highlights and the progress we ve made against the key priorities we outlined last quarter. Following my prepared remarks I'll open the call for questions. Before we begin, I would like to remind everyone that throughout my remarks this morning when I refer to break-even or profitability, I am referring to these items on an Adjusted EBITDA basis. As we mentioned last quarter, our key priorities include a focus on product development such as mobile optimization and pricing and package testing and our path to break even by mid 2016 and profitability by the end of I'm excited to share more details with you in a moment. Before I do, I'll review our consolidated quarterly highlights and financial details for the US Matching and Payments businesses. We continue to drive top line growth as the leading online destination for finding and managing family care in a market consisting of 42 million families in the US alone while also increasing operating leverage. For the first quarter revenue grew to $35.1 million, a 39% increase over Q on a consolidated basis and a 27% increase organically. That is, excluding Citrus Lane, which we acquired in July First quarter net loss was $12 million as compared to a net loss of $15.5 million in the first quarter of This represents margin improvement of 27 percentage points. Excluding the impact of Citrus Lane, net margin improvement was 31 percentage points. On an Adjusted EBITDA basis for the consolidated business, the first quarter 2015 loss was $7.1 million which exceeded our Q1 guidance of a loss of $8.2 million to $7.6 million. This compares to an Adjusted EBITDA loss of $9.6 million in the first quarter of The resulting margin improvement was 18 percentage points. Excluding the impact of Citrus Lane, Adjusted EBITDA margin improvement was 21 percentage points. These results were driven largely by our US Matching and Payment businesses which together made up roughly 80% of our revenue, saw 27% growth versus Q1 of

3 2014, and were break even on operating income and profitable on Adjusted EBITDA for the second quarter in a row. In US Matching we ended the quarter with over 230,000 paying members representing a 28% increase over Q We expect US Matching, end of period paying member growth for the full year of between 20% and 25%. For the first quarter, US Matching revenue grew 26% to $22.6 million up from $18 million in the first quarter of One of our high growth channels of recurring revenue for the US Matching business is Workplace Solutions. We continue to grow our Workplace Solutions client base. Recent additions include The Gap, Boston Medical Center and Quick Trip.. As we mentioned on our last call, we are investing resources in a handful of mobile studios to drive traffic and member growth and engagement. These studios have dedicated product and engineering teams focused on agile innovation. One of these studios is working on transactional use cases such as date night, leveraging our ongoing investments in transactional platform modules, availability, bookings and payments. We believe that apps designed to address these use cases which we'll be rolling out over the course of the year will drive incremental demand from families. Another studio is focused on our Care.com Everyday Strategy through community engagement. We expect to launch a Parenting Community app in Q2. Average monthly revenue per user for our US Matching business was $34.42 in Q1 roughly in line with last the year's $35.03 for Q In Q2, we're continuing to test bundled pricing and packaging in both our Matching and Payments businesses thereby diversifying our offerings to more specifically target our members' needs, such as with our Nanny Premium offering. With a goal of improving overall ARPU and eventually conversion. We expect to discuss learnings from these tests in upcoming quarters. We estimate our US Matching latest cohort s length of paid time at 8.6 months. More details regarding cohort information can be found on the Investor Relations website. In our US Payments business, known as Care.com HomePay which continues to be highly profitable. We grew revenue 31% over Q to $5.5 million. For the first quarter we estimate that over 50% of new Payments members acquired were influenced by cross-platform initiatives as well as broader Care.com brand marketing. Care.com HomePay members grew 25% in the first quarter to over 15,400 with ARPU increasing to $125, a 3 %increase over Q1 '14. Average length of paid time which we have historically measured at ten-year period is at 41 months. Our international and B2 B business has delivered combined revenue growth of 28% versus Q1 '14 or 42% on a constant currency basis to $3.9 million. We're very excited about these businesses and the growth opportunities they represent as they leverage the strength of the Care.com platform. Separately, Citrus Lane revenue was $3.1 million for the quarter, exceeding our scaledback expectations as we continue to work through the model.

4 We continue to benefit from the power of our platform to drive operating leverage, most notably in sales and marketing. While our total organic revenue increased 27% in the quarter, we decreased sales and marketing expenses as a percent of revenue by 17 percentage points, from 81% in Q1 '14 to 64% in Q This sales and marketing leverage comes primarily from significant improvements in the performance of our unpaid acquisition channels. Year-to-date results are strong, with 59% year-over-year growth in SEO traffic, driven primarily by our investments in responsive design across our desktop and mobile web platforms which started in mid The recent change to Google's algorithm rewards such design because it yields a consistent and better experience for users on any device they use. We're continuing to invest in other initiatives, such as content development, through ongoing product development and our existing content partnerships with Yahoo Parenting and Zillow to further drive future organic growth, especially in preparation for our peak season next quarter. In addition, the increased sales and marketing leverage was driven by our continued optimization of current paid channels including a 30% lower investment in TV versus Q1 '14 and shifting the marketing mix toward lower cost digital channels such as Facebook and affiliates. This results in a decrease in total direct marketing spend for the US Matching and Payments businesses of 15% in the first quarter. Thus, as we leverage both unpaid and paid marketing channels along with accelerated organic initiatives in SEO and content development, we are reducing customer acquisition costs. Results to date are strong, with 67% of member acquisition coming from unpaid marketing channels, an improvement over 62%in As we mentioned last quarter, because we target the same customer for both US Matching and Payments, including integrated products and marketing programs, we view customer acquisition costs on a blended basis. In the first half of 2015, CAC is expected to be 15% lower than in the first half of 2014, in line with our expectations shared on the last call. And as we discussed in our last quarterly call, our path to profitability is a key priority, and I'm pleased to share that we continue to believe we are on track to achieve break-even by mid 2016 and profitability by the end of During the first quarter, EBITDA profitability improved 18- percentage points year-over-year. Our US Matching and Payments businesses, which together represented 80% of revenue in the first quarter of 2015, were profitable, with a combined EBITDA margin of 5%, up 19 percentage points from negative 14% in Q1 of Our continuous focus on leveraging sales and marketing spend is a key driver of our path to profitability. As a percent of revenue, organic sales and marketing spend decreased from 81% percent last year to 64% this quarter. This meaningful sales and marketing leverage is reflected in our overall Q1 results. For the quarter, organic revenue grew 27% year-over-year while organic sales and marketing spend was roughly flat. We continue to expect total sales and marketing spend as a percentage of revenue to decline on a year-over-year basis each quarter in 2015 and full year sales

5 and marketing spends to be below 60 % of revenue. We're excited about our progress across each of these priorities in our entire business. I'll turn now to guidance. For the second quarter, we expect consolidated revenue of between $34 million and $36 million. For our organic businesses we expect revenue of between $31.5 million and $32.5 million and for Citrus Lane, we expect revenue of between $2.5 million and $3.5 million for Q2. We expect Q2 consolidated Adjusted EBITDA to be a loss of between $6.5 million and $5.5 million including a loss from Citrus Lane of roughly $1 million. For the full year we expect consolidated revenue between $146 million and $155 million. For our organic businesses we expect full year revenue of between $134 million and $141 million and for Citrus Lane we expect full year revenue of between $12 million and $14 million. We expect 2015 consolidated Adjusted EBITDA to be a loss between $15 million and $9 million including a loss from Citrus Lane of $4 million to $2 million. Note: That despite our performance in Q1 our full year Adjusted EBITDA guidance remains unchanged. This is driven by incremental investments in mobile optimization and pricing and package testing, and we expect to end 2015 with approximately $50 million in cash. In closing. We made great progress against our strategic priorities. Our US Matching and Payments businesses are profitable. We continue to drive sales and marketing leverage in EBITDA gains, and we believe that we are on track to break even in mid We're thrilled to have our new CFO Michael Echenberg. He will be joining with us in a few months when we share with you our Q2 results and I look forward to introducing him to our Investors and Analysts in the coming weeks. Now I'll be happy to take your questions. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you, our first question comes from the line of Justin Post with Bank of America Merrill Lynch. Please proceed with your question. Justin Post: Thank you. I have two questions. First, when you think about optimizing the packages for different uses, people use the service for nannies and babysitters, how do you think about changing pricing to better optimize the service and to better capture revenues? Then the second question, looking back to quite a bit of marketing spend last year, it

6 definitely has helped your customer acquisition, but what have you kind of learned from the extra marketing spending last year and how will that help you as you look forward? Thank you. Sure, good morning, Justin. So the first one with regard to changing pricing, really for the first time we had sort of a generic product, and the difference the only dynamic pricing we really did was sort of geographical income testing and everything was really based on tenure. So we had a one-month, a three-month and a 12-month package. What we've actually moved to is pricing on features. So that now we're actually differentiating specific types of features, number of jobs posted, number of applicants received per job, and starting to highlight those things and then changing the pricing, experimenting with tenure, as well. So for the first time we're moving in that direction. Second layer we're doing is also better segmentation and targeting of our base. Now we're the largest (inaudible) in the space and we've got significant density of caregivers, we can start to segment and drive specific needs. So, for example, you touched on nanny premium. We can actually specifically target full-time nannies and price differently from those that might need ad hoc baby-sitting, for example. So those are the kinds of things we're doing to really optimize revenue. We released on April 23rd, our start of testing, the results are quite promising. So we're very excited across the different types of pricing package that we're doing throughout our entire platform and that includes international, as well. On your second question with regards to overall marketing spend. What we learned was really start to optimize based on seasonal creative testing with TV, so that we re making that much more optimal with regards to our spending, and we've used many of those dollars actually to start to focus on other digital channels such as Facebook as we grow that mobile traffic there as well. Then the second place we ve actually started to put our dollars even though overall sales and marketing for our organic business has remained roughly flat, we ve used some of those dollars specifically for long term investments, such as investing in organic content development for SEO. Hiring new digital talent to focus on scale through Facebook and other channels, and also pricing and packaging consultants to help us with the research. So these are really long-term investments that we're doing and using the dollars sort of in that way for the growth of the business that we expect 2016 and beyond. Justin Post: Great, thank you. Thanks Sheila.

7 As a reminder if you would like to ask a question, press star, one on your telephone keypad. If you're using speakerphone, you may need to pick up your handset before you press the star keys. Our next question comes from the line of Douglas Anmuth with JP Morgan. Please proceed with your question. Diana Kluger: Hi, this is Diana Kluger in for Doug. Just wanted to see if you could give some color on any trends in reuse rates or other user behavior that you could call out? Sure, thanks, Diana, good morning. So, sure, the reuse rates continue to be strong at 60%, and you can see in our length of paid time overall, for our most recent cohort, it's actually up to 8.6 months in our recent estimates, and you can refer to the Investor Relations portion of our website with the most updated information we have on month of pay time, Diana. Diana Kluger: Great. Just a quick follow-up on the southern marketing spend. It seems like there's a pretty decent change, you know, compared to the previous expectations. Is any of that shifted out later in the year? Or is this kind of the new normal in terms of sales and marketing spend and you're just reinvesting it in other areas? It's actually fairly consistent with what we guided last quarter that we expect total sales and marketing as a percentage of revenue to be under 60% that we're estimating for the year. We are continuing to spend in a similar pattern that we did last year that a total of our 85 %of our total sales and marketing spend will be with the first three quarters and that is pretty much the same pattern. Diana Kluger: Okay, thank you. Our next question comes from the line of Kerry Rice with Needham & Company. Please proceed with your company. Kerry Rice:

8 Thanks a lot. Two questions. Citrus Lane was a little bit better than we were expecting, I think you highlighted that, as well. Was that related to maybe conservatism or I know you were going through some retooling there. Could you talk a little bit about that? And then the second question I have is around some pretty significant growth around the US Matching members. Was that, again, was that a seasonality thing or was that some progress you have made on mobile optimization and some pricing and packaging bundles. If you could address that, that would be great. Thank you. Sure. With regards to Citrus Lane, we believe that we've guided with reasonability for the rest of the year, so we feel that we're right on track and on target. With regard to the retooling, we've been around the unique economics of the business and now starting to really spend time with growing that. So we continue to be thoughtful around it and remain consistent with our guidance for our expectation for this year for Citrus Lane. On US Matching members, a lot of progress was really the start of investments that we made in mid 2013 with respect to organic growth overall and so that also includes just significant reuse that's also happening because we continue to improve the user experience. The mobile investments are really just getting underway, and we're looking forward to updating everyone on the progress there. Kerry Rice: Thank you. Our next question comes from the line of Mitch Bartlett with Craig-Hallum. Please proceed with your question. Mitch Bartlett: Sure. Good morning, Sheila. The discussion around your different marketing channels with TV 30% lower, the investment in content to drive SEO and whatnot, the question is: How big is TV still and where is it going to evolve to as you make these investments in content? And also, you mentioned affiliates. I would love you to just kind of expand what might happen there under affiliates. So the question is broadly just over a period of time, what is the evolution that you see in your paid marketing channels? As we shared today, we're really strong results, unpaid has increased from 62% to 67% of sources now, Mitch, and so we continue to remain focused around unpaid organic growth as ways to invest in the business..

9 With regards to paid marketing, including television, we saw overall direct spend in US Matching and Payments decline in total spend by 15%, and TV by 30%, which we shared this morning. We continue to be big believers in television because it's been strong at not only building our brand but continuing to be a positive ROI in acquiring our customers and our members. We're just really thoughtful around optimizing that and diversifying our channels and starting to spend more with regards to digital and Facebook specifically on mobile because that's where the members are going. So we want to make sure that we're reaching them in the most optimal way. But again our focus is line of sight towards profitability and break-even by mid-2016 we're excited about. So just making sure we're optimizing our spend and at the same time continuing to have strong growth in our business. Mitch Bartlett: Great. And with regards to affiliate, that also is underway, we hired recently someone who's been an expert. She actually came from the coupon world online, and so she's very familiar with the affiliate network. We're excited, we ve actually re-negotiated pretty much all our contracts with affiliates with a much lower commission rate, and so we're excited to see that grow, as well. Mitch Bartlett: Then last quarter you talked about mobile and the development of your mobile sites and getting mobile ready. Maybe you could just update. Maybe you did that in the call and I didn't catch it, but update us on mobile? Yes, mobile is very, very exciting. As I shared on our last call, really investing on building out the infrastructure specifically on our main flat form, and that includes availability, bookings and transaction so that we can leverage that for developing a set of mobile use cases, date night, after school. We'll be rolling out quite a number, nanny premium, of different use cases specifically targeting our members. And so certainly please keep a lookout, but we've been releasing quite a bit in investing there, and prior to peak season, we also expect to invest in an optimized mobile enrollment. As I mentioned in our last call, we don't really have that platform today but we expect to put that out before our peak season to have a full end-to-end experience which is our learning from Q4 that millennials, based on our research, wanted to do and end-to-end experience on mobile rather than just cross-device usage. Mitch Bartlett:

10 Last question would be just the competitive front. What have you seen over the last little while? In terms of the competitive environment, we really pay attention to that. More recent results for us is that we are significantly larger than all the different niche focused players out there. And at the same time continuing to focus on really targeting the 42 million households because penetration is still low at 3% of cumulative paid members. About 1.5 million to date. Going after that 42 million households, so it s still early. Our main competition is really people using their other networks offline and how to help grow the market overall. Mitch Bartlett: Thank you. Thank you. Ladies and Gentlemen, we have reached the end of the question and answer session, and with that, the conclusion of today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.