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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-39774
_________________________________
Rover Group, Inc.
_________________________________
(Exact name of registrant as specified in its charter)
Delaware
85-3147201
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
720 Olive Way, 19th Floor
Seattle, WA

98101
(Address of Principal Executive Offices)
(Zip Code)
(888) 453-7889
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareROVRThe Nasdaq Global Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   ☐     No  x
The registrant had 179,432,117 shares outstanding of Class A Common Stock, par value $0.0001 per share, as of November 3, 2023.

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Item 1A.
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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q of Rover Group, Inc. (the “Company,” “Rover,” “we,” “us” or “our”) contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “possible,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “would,” “intend,” “target,” “project,” “consider,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “forecast,” “assume,” “would,” “focus,” “increase,” “deliver,” “drive,” “achieve,” “sustain,” “improve,” “expand,” “further,” “remain,” “outlook,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include, but are not limited to, statements about:

•general macroeconomic and geopolitical conditions, including health-related events, political instability, sustained levels of increased inflation, rising interest rates, significant U.S. dollar and foreign currency fluctuations, lower consumer confidence, depressed consumer spending, higher levels of consumer debt, lower pet adoption levels, the number of pet owning households, a reduction in the volume of home sales and its impact on relocating households, monetary and fiscal policy changes, stock market volatility, any U.S. government shutdown, any further downgrades in the U.S. credit rating, and the resumption of payments on federally-held student loans, geopolitical conflicts, slower economic growth and economic downturns, and their impact on consumer spending and travel patterns, demand for and pricing on our platform, and our business, operating results and financial condition, including potential impairments;
•the effects of the COVID-19 pandemic, including as a result of new strains or variants of the virus and non-COVID illnesses that may result from reduced immunity caused by social distancing during the pandemic, and other geopolitical events like the current armed conflicts between Ukraine and Russia and between Israel and Hamas on customer demand and our business, key business metrics, operating results and financial condition and on our ability to forecast our financial and operating results, the travel industry, travel trends, and the global economy generally;
•our ability to retain existing and acquire new pet parents and pet care providers and keep bookings on our platform;
•our expectations about, our ability to successfully defend, and the outcome of, any known and unknown litigation and regulatory proceedings, including with respect to the classification of pet care providers on our platform, and the potential impact on our business operations and financial performance if we are not successful or resulting from changes to our business practices and platform to bolster the classification of pet care providers who use the Rover platform as independent contractors;
•our expectations regarding our future operating and financial performance, including bookings, gross booking value, or GBV, average booking value, or ABV, booking mix, cancellation rates, revenue and expenses, and the timing of payment obligations;
•the strength of our network, effectiveness of our technology, and quality of the offerings provided through our platform;
•our opportunities and strategies for growth, including investments and product improvements, new offerings, partnerships, distribution channels, acquisitions and international markets;
•the success of our marketing strategies and investments;
•our investments in product improvements, new products, initiatives and offerings and new geographies, market effects thereof, and the effect of these investments on our results of operations;
•our ability to successfully close and integrate acquisitions into our operations;
•our ability to introduce new products and offerings and enhance existing products and offerings;
•our ability to match pet parents with high quality and well-priced offerings;
•our assessment of and strategies to compete with existing and new competitors in existing and new markets and offerings;
•our assessment of our trust and safety practices;
•our ability to maintain the security and availability of our platform;
•our ability to accurately and effectively use data and engage in predictive analytics;
•our ability to attract and retain talent and the effectiveness of our compensation strategies and leadership;
•seasonal fluctuations in bookings, GBV, ABV, revenue, marketing, operating expenses, net income (loss), and Adjusted EBITDA;
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•our future capital requirements and sources and uses of cash;
•the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs;
•our ability to execute our publicly announced share repurchase program;
•changes in applicable laws or regulations, including with respect to the classification of pet care providers on our platform, taxation, privacy, data protection and information security;
•our ability to stay in compliance with laws and regulations, including with respect to the classification of pet care providers on our platform, taxation, privacy, data protection and information security, that currently apply or may become applicable to our business both in the United States and internationally and our expectations regarding the effects of various existing and developing laws and restrictions that relate to our business;
•our ability to identify, recruit, and retain skilled personnel, including key members of senior management;
•our ability to effectively manage our exposure to fluctuations in foreign currency exchange rates and interest rates;
•the increased expenses associated with being a public company;
•our ability to maintain and protect our brand and reputation;
•our ability to effectively manage our growth and maintain our corporate culture;
•our current plans, considerations, expectations and determinations regarding future compensation programs; and
•other risks and uncertainties described under Part II. Item 1A of this report titled “Risk Factors.”

We caution you that the foregoing list does not contain all of the forward-looking statements made in this report.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other important factors, including those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A “Risk Factors,” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made available. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this report, and the documents that we reference in this report and have filed as exhibits to this report, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this report by these cautionary statements.

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Risk Factors Summary

Our business is subject to numerous risks. The following is a summary of the principal risks we face that could materially adversely affect our business, operating results, financial condition and prospects, all of which are more fully described in the section of this report titled “Risk Factors.” This summary is not complete and the risks summarized below are not the only risks we face. You should review and consider carefully the risks and uncertainties described in more detail in “Risk Factors,” and should not rely upon the following as an exhaustive summary of the material risks facing our business.
Risks Related to our Business and Industry
•Any decline or disruption in the travel and pet care services industries or an economic downturn could materially adversely affect our business, results of operations, and financial condition.
•We have incurred net losses in each year since inception and may not be able to achieve or sustain annual net income.
•Our revenue may not continue to grow over time and may slow or reverse again in the future.
•Our Adjusted EBITDA may not continue to grow over time and may slow or reverse again in the future.
•The COVID-19 pandemic and the impact of actions to mitigate the COVID-19 pandemic have materially adversely impacted and may continue to materially adversely impact our business, operating results, and financial condition.
•Online marketplaces for pet care are still in relatively early stages of growth and if demand for them does not continue to grow, grows slower than expected, or fails to grow as large as expected, our business, financial condition, and operating results could be materially adversely affected.
•Our marketing efforts to help grow the business may not be effective.
•Off-platform bookings and payments have had and may continue to have a material adverse effect on our business, operating results and financial condition.
•If we fail to retain existing pet care providers and pet parents on our platform or attract new pet care providers and pet parents to our platform, or if pet care providers fail to provide high-quality offerings, or if pet parents fail to receive high-quality offerings, our business, operating results, and financial condition would be materially adversely affected.
•Our business and users are subject to tax information reporting requirements in a number of jurisdictions, which could increase our operational costs and negatively impact the user experience and bookings on our platform.
•The success of our platform relies on our matching algorithms and other proprietary technology and any failure to operate and improve our algorithms or to develop other innovative proprietary technology effectively could materially adversely affect our business, financial condition, and operating results.
•The business and industry in which we participate are highly competitive and we may be unable to compete successfully with our current or future competitors.
•New offerings and initiatives can be costly and if we unsuccessfully pursue such offerings and initiatives, we may fail to grow and our business, operating results, financial condition and prospects would be materially adversely affected.
•Maintaining and enhancing our brand reputation is critical to our growth and negative publicity could damage the Rover brand, thereby harming our ability to compete effectively.
•Actions by pet care providers or pet parents that are criminal, violent, inappropriate, dangerous, or fraudulent may undermine the safety or the perception of safety of our platform and materially adversely affect our reputation, our ability to attract and retain pet care providers and pet parents, business, operating results and financial condition.
•We may experience significant fluctuations in our operating results and key business metrics, which make it difficult to forecast future results and could cause our stock price to decline.
Risks Related to Regulation and Taxes
•If pet care providers are reclassified as employees under applicable law or new laws are passed causing the reclassification of pet care providers as employees or otherwise adopting employment-like restrictions with regard to pet care providers who use our platform, our business would be materially adversely affected.
•Our business is subject to a variety of laws and regulations, many of which are unsettled and still developing and failure to comply with such laws and regulations could subject us to claims or otherwise materially adversely affect our business, financial condition, or operating results.
•We are subject to regulatory inquiries, claims, lawsuits, investigations, various proceedings and other disputes and face potential liability and expenses for legal claims, which could materially adversely affect our business, operating results, and financial condition.
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•Taxing authorities may successfully assert that we have not properly collected, or in the future should collect, sales and use, gross receipts, value added, or similar taxes and may successfully impose additional obligations on us.
Risks Related to Privacy and Technology
•We have been subject to cybersecurity attacks in the past and anticipate being the target of future attacks. Any actual or perceived breach of security or security incident or privacy or data protection breach or violation could interrupt our operations, harm our brand and reputation and adversely affect our business, financial condition, and operating results.
•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 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.
•Systems defects and failures and resulting interruptions in the availability of our website, mobile applications, or platform could adversely affect our business, financial condition and operating results.
•We rely on third-party payment service providers to process payments on our platform. If these third-party payment service providers become unavailable or insolvent, are subject to cybersecurity attacks, or we are subject to increased fees, our business, operating results, and financial condition could be materially adversely affected.
•We rely on mobile operating systems and application marketplaces to make our applications available and if they modify their policies, or if we do not effectively operate with or receive favorable placements within such application marketplaces and maintain high user reviews, the usage of our platform or brand recognition could decline and our business, financial results and operating results could be materially adversely affected.
•We use and may continue to use artificial intelligence in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
Risks Related to Our Intellectual Property
•Failure to adequately protect our intellectual property could adversely affect our business, financial condition and operating results.
Risks Related to our Operations
•We depend on our highly skilled employees to grow and operate our business and if we are unable to hire, retain, manage and motivate our employees, or if our new employees do not perform as anticipated, we may not be able to grow effectively and our business, financial condition, and operating results could be materially adversely affected.
•Our support function is critical to the success of our platform and any failure, or perceived failure, to provide high-quality service could affect our ability to retain our existing pet care providers and pet parents and attract new ones.
•We may face difficulties as we expand our operations into new local markets in which we have limited or no prior operating experience.
•Our presence outside the United States and any future international expansion strategy will subject us to additional costs and risks and our plans may not be successful.
•Failure to successfully execute and integrate acquisitions or receive a favorable return on acquisitions or strategic investments could materially adversely affect our business, operating results and financial condition.
Risks Related to Our Financial Reporting and Disclosure
•Because we recognize revenue upon the start of a booked service and not at booking, upticks or downturns in bookings are not immediately reflected in our operating results.
•Our management has limited experience in operating a public company.
•We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain effective internal control over financial reporting, which may result in material misstatements of our consolidated financial statements, cause us to fail to meet our periodic reporting obligations, and subject us to litigation and other risks.
Risks Related to Ownership of Class A Common Stock
•The market price of our Class A Common Stock has been, and may continue to be, volatile and may decline.
•Insiders currently have and may continue to possess substantial influence over us, which could limit investors’ ability to affect the outcome of key transactions, including a change of control.
•Our stockholders may experience significant dilution in the future.
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Part I - Financial Information
Item 1. Financial Statements
ROVER GROUP, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
September 30,
2023		December 31,
2022
Assets
Current assets
Cash and cash equivalents$129,142 $58,875 
Short-term investments74,822 191,347 
Accounts receivable, net76,473 53,181 
Notes receivable from related parties— 1,810 
Prepaid expenses and other current assets7,868 6,829 
Total current assets288,305 312,042 
Restricted cash3,675 — 
Property and equipment, net19,261 19,518 
Operating lease right-of-use assets17,211 18,871 
Intangible assets, net2,511 6,865 
Goodwill33,159 36,915 
Deferred tax asset, net1,361 1,306 
Long-term investments26,918 22,463 
Investment in equity securities in related parties3,444 — 
Other noncurrent assets1,045 281 
Total assets$396,890 $418,261 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$5,914 $5,354 
Accrued compensation and related expenses6,239 6,644 
Accrued expenses and other current liabilities6,491 22,694 
Deferred revenue13,112 5,544 
Pet parent deposits50,195 40,783 
Pet care provider liabilities2,155 3,319 
Operating lease liabilities, current portion2,613 2,727 
Total current liabilities86,719 87,065 
Operating lease liabilities, net of current portion19,943 22,208 
Other noncurrent liabilities409 714 
Total liabilities107,071 109,987 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000 shares authorized as of September 30, 2023 and December 31, 2022; no shares issued and outstanding as of September 30, 2023 and December 31, 2022
— — 
Class A common stock, $0.0001 par value, 990,000 shares authorized as of September 30, 2023 and December 31, 2022; 180,836 and 184,526 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
18 18 
Additional paid-in capital667,007 651,659 
Accumulated other comprehensive loss(157)(1,098)
Accumulated deficit(377,049)(342,305)
Total stockholders’ equity289,819 308,274 
Total liabilities and stockholders’ equity$396,890 $418,261 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ROVER GROUP, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Revenue$66,203 $50,864 $165,852 $122,059 
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)
13,634 11,607 37,022 29,976 
Operations and support8,156 7,425 22,985 19,265 
Marketing12,684 8,686 35,401 27,044 
Product development8,566 7,100 24,164 20,380 
General and administrative13,599 30,599 39,640 53,616 
Depreciation and amortization1,189 1,561 4,143 4,432 
Impairment loss on intangible assets and goodwill— — 6,916 — 
Total costs and expenses57,828 66,978 170,271 154,713 
Income (loss) from operations8,375 (16,114)(4,419)(32,654)
Other income (expense), net:
Interest income3,152 1,287 8,566 2,084 
Interest expense(15)(19)(51)(61)
Change in fair value of other investments— — 1,115 — 
Change in fair value of derivative warrant liabilities— — — 4,579 
Other (expense) income, net(568)(257)1,560 (1,045)
Total other income (expense), net2,569 1,011 11,190 5,557 
Income (loss) before income taxes and equity method investments10,944 (15,103)6,771 (27,097)
(Provision for) benefit from income taxes(128)(44)(199)172 
Loss from equity method investments, net of tax(316)(325)(981)(325)
Net income (loss)$10,500 $(15,472)$5,591 $(27,250)
Net income (loss) per share attributable to common stockholders:
Basic $0.06 $(0.08)$0.03 $(0.15)
Diluted$0.05 $(0.08)$0.03 $(0.15)
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
Basic181,423 182,493 183,126 181,309 
Diluted192,977 182,493 193,704 181,309 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ROVER GROUP, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Net income (loss)$10,500 $(15,472)$5,591 $(27,250)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(78)(164)13 (389)
Unrealized gain (loss) on available-for-sale debt securities125 (543)928 (1,539)
Other comprehensive income (loss), net of tax47 (707)941 (1,928)
Comprehensive income (loss)$10,547 $(16,179)$6,532 $(29,178)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ROVER GROUP, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance as of December 31, 2022
184,526 $18 $651,659 $(1,098)$(342,305)$308,274 
Issuance of common stock upon exercise of stock options1,039 1 1,846 — — 1,847 
Issuance of common stock upon release of restricted stock units308 — — — — — 
Taxes paid related to settlement of equity awards— — (1,129)— — (1,129)
Repurchase and retirement of common stock(632)— — — (3,056)(3,056)
Stock-based compensation— — 4,979 — — 4,979 
Foreign currency translation adjustments— — — 57 — 57 
Unrealized gain on available-for-sale debt securities— — — 594 — 594 
Net loss— — — — (4,656)(4,656)
Balance as of March 31, 2023185,241 $19 $657,355 $(447)$(350,017)$306,910 
Issuance of common stock upon exercise of stock options533 — 1,153 — — 1,153 
Issuance of common stock upon release of restricted stock units879 — — — — — 
Taxes paid related to settlement of equity awards— — (2,245)— — (2,245)
Repurchase and retirement of common stock(3,495)(1)— — (16,683)(16,684)
Stock-based compensation— — 6,427 — — 6,427 
Foreign currency translation adjustments— — — 34 — 34 
Unrealized gain on available-for-sale debt securities— — — 209 — 209 
Net loss— — — — (253)(253)
Balance as of June 30, 2023183,158 $18 $662,690 $(204)$(366,953)$295,551 
Issuance of common stock upon exercise of stock options387 — 931 — — 931 
Issuance of common stock upon release of restricted stock units746 — — — — — 
Taxes paid related to settlement of equity awards— — (3,100)— — (3,100)
Repurchase and retirement of common stock(3,455)— — — (20,596)(20,596)
Stock-based compensation— — 6,486 — — 6,486 
Foreign currency translation adjustments— — — (78)— (78)
Unrealized gain on available-for-sale debt securities— — — 125 — 125 
Net income— — — — 10,500 10,500 
Balance as of September 30, 2023180,836 18 667,007 (157)(377,049)289,819 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ROVER GROUP, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)

Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance as of December 31, 2021177,342 $18 $612,680 $220 $(320,326)$292,592 
Reclassification of derivative warrant liability and issuance of common stock from exercises of warrants2,046 — 15,356 — — 15,356 
Issuance of common stock upon exercise of stock options2,242 — 2,005 — — 2,005 
Issuance of common stock upon release of restricted stock units200 — 348 — — 348 
Taxes paid related to settlement of equity awards— — (393)— — (393)
Stock-based compensation— — 4,447 — — 4,447 
Foreign currency translation adjustments— — — (61)— (61)
Unrealized loss on available-for-sale debt securities— — — (410)— (410)
Net loss— — — — (8,146)(8,146)
Balance as of March 31, 2022181,830 $18 $634,443 $(251)$(328,472)$305,738 
Issuance of common stock upon exercise of stock options504 — 674 — — 674 
Issuance of common stock upon release of restricted stock units442 — 764 — — 764 
Taxes paid related to settlement of equity awards— — (908)— — (908)
Stock-based compensation— — 5,099 — — 5,099 
Foreign currency translation adjustments— — — (164)— (164)
Unrealized loss on available-for-sale debt securities— — — (586)— (586)
Net loss— — — — (3,632)(3,632)
Balance as of June 30, 2022182,776 $18 $640,072 $(1,001)$(332,104)$306,985 
Issuance of common stock upon exercise of stock options141 — 273 — — 273 
Issuance of common stock upon release of restricted stock units650 — 908 — — 908 
Taxes paid related to settlement of equity awards— — (923)— — (923)
Stock-based compensation— — 5,253 — — 5,253 
Foreign currency translation adjustments— — — (164)— (164)
Unrealized loss on available-for-sale debt securities— — — (543)— (543)
Net loss— — — — (15,472)(15,472)
Balance as of September 30, 2022183,567 $18 $645,583 $(1,708)$(347,576)$296,317 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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ROVER GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20232022
OPERATING ACTIVITIES
Net income (loss)$5,591 $(27,250)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation16,436 14,025 
Depreciation and amortization9,642 9,634 
Non-cash operating lease costs1,659 2,065 
Impairment loss on intangible assets and goodwill6,916 — 
Change in fair value of other investments(1,115)— 
Change in fair value of derivative warrant liabilities— (4,579)
Net accretion of investment discounts(2,896)(523)
Deferred income taxes(45)(225)
Loss on disposal of property and equipment102 30 
Loss from equity method investments981 325 
Changes in operating assets and liabilities:
Accounts receivable(23,292)(23,480)
Prepaid expenses and other current assets(1,039)(753)
Other noncurrent assets(764)(10)
Accounts payable560 (373)
Accrued expenses and other current liabilities(16,796)17,799 
Deferred revenue and pet parent deposits16,980 16,807 
Pet care provider liabilities(1,164)(7,104)
Operating lease liabilities(2,379)(2,358)
Other noncurrent liabilities(305)132 
Net cash provided by (used in) operating activities9,072 (5,838)
INVESTING ACTIVITIES
Purchases of property and equipment(550)(443)
Capitalization of internal-use software(6,288)(5,751)
Proceeds from disposal of property and equipment— 2 
Acquisition of businesses, net of cash acquired— (5,711)
Purchases of convertible notes— (1,310)
Purchases of equity securities in related parties(1,500)— 
Purchases of available-for-sale securities(112,035)(252,282)
Proceeds from sales of available-for-sale securities57,775 — 
Maturities of available-for-sale securities170,153 55,383 
Net cash provided by (used in) investing activities107,555 (210,112)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and issuance of common stock 3,930 4,972 
Redemption of common stock warrants— (7)
Repurchases of common stock(40,136)— 
Taxes paid related to settlement of equity awards(6,474)(2,224)
Net cash (used in) provided by financing activities(42,680)2,741 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(5)(177)
Net increase (decrease) in cash, cash equivalents, and restricted cash73,942 (213,386)
Cash, cash equivalents, and restricted cash, beginning of period58,875 278,904 
Cash, cash equivalents, and restricted cash, end of period$132,817 $65,518 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes$550 $45 
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Nine Months Ended September 30,
20232022
Cash paid for interest4 7 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchases of property and equipment in accounts payable and accrued liabilities$— $138 
Right-of-use assets obtained in exchange for lease liabilities— 16 
Conversion of promissory notes to equity security investment in related parties
2,345 — 
Reclassification of certain derivative warrant liabilities to equity upon exercise
— 15,356 
Recognition of indemnity holdback liabilities upon acquisition of businesses— 1,563 
Stock-based compensation capitalized to internal-use software1,459 773 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents$129,142 $65,518 
Restricted cash3,675 — 
Total cash, cash equivalents, and restricted cash$132,817 $65,518 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Organization and Description of Business
Rover Group, Inc. and its wholly owned subsidiaries (collectively “Rover” or the “Company”) is headquartered in Seattle, Washington with U.S. offices in Spokane, Washington and San Antonio, Texas, and internationally in Barcelona, Spain. The Company provides an online marketplace and other related tools, support and services that pet parents and pet care 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.”
Liquidity
As of September 30, 2023, the balance of cash and cash equivalents, short term investments, and long term investments was $129.1 million, $74.8 million, and $26.9 million, respectively. The Company has historically incurred losses from operations and had an accumulated deficit of $377.0 million as of September 30, 2023. 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 invests in expansion activities, we may continue to experience operating losses. Management believes that the Company’s current cash and cash equivalents and investments will be sufficient to fund its operations for at least the next 12 months from the issuance of these condensed 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. 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. If 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 unaudited condensed 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 accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2022. The information as of December 31, 2022 included in the condensed consolidated balance sheets was derived from those audited financial statements.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial information for the interim periods presented. The unaudited condensed consolidated results of operations for the interim period are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Reclassifications
Certain amounts previously presented for prior periods have been reclassified to conform to current presentation. These reclassifications did not affect assets, liabilities, net loss, cash flows or equity for the periods presented.
Use of Estimates
The preparation of condensed 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 condensed consolidated balance sheets 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, estimates used in impairment tests, the assumptions used in the valuation of leases, legal contingencies, stock-based compensation expense, income taxes and non-income tax reserves, and certain deferred tax assets and tax liabilities. These estimates and assumptions are based on information available as of the date of the condensed 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 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.

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. Substantially all revenue is based in the United States, and no individual foreign country represents 10% or more of the Company’s revenue.
Foreign Currencies
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. 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 condensed consolidated statements of operations. The net effect of foreign currency was a $0.6 million and $0.2 million loss during the three and nine months ended September 30, 2023, respectively, and a $0.2 million and $1.0 million loss during the three and nine months ended September 30, 2022, respectively.
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 technology 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. To management’s knowledge, no interruptions, attacks or breaches have, individually, or in the aggregate, resulted in any material liability to the Company, any material damage to the Company’s reputation, or any material disruption to the Company’s business.
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 exceed, and may in the future exceed, the insured limits set by the Federal Deposit Insurance Corporation. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company reduces credit risk by placing cash and investment balances with major financial institutions that
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
management assesses to be of high-credit quality and also limits purchases of debt securities to investment-grade securities. The Company regularly evaluates the credit rating for issuers of government and corporate debt securities that it holds and other non-financial third party institutions.
For the three and nine months ended September 30, 2023 and 2022, no individual pet care provider, pet parent, or affiliate represented 10% or more of the Company’s revenue. As of September 30, 2023 and December 31, 2022, accounts receivable was $76.5 million and $53.2 million, respectively, and was inclusive of $73.9 million and $51.1 million, respectively, which was due from payment processors who collected payment from pet parents on behalf of the Company. As of September 30, 2023 and December 31, 2022, the accounts receivable balance was also inclusive of $2.0 million and $1.4 million, respectively, which was due from arrangements with third parties, in which these third parties reimburse the Company for credits issued to pet parents. The Company’s receivables are short-term in nature and the Company’s historical experience of losses has not been material.
Revenue Recognition
Marketplace Platform Revenue
The Company operates an online marketplace that provides a platform for pet parents and pet care providers to communicate and arrange for pet care services. The Company derives substantially all, or approximately 90% or more, of its revenue from pet parents’ and pet care providers’ use of the Company’s platform and related services that enable pet care providers to offer, book, and fulfill pet care services.
The Company enters into its standard terms of service with pet care providers and pet parents who wish to use the Company’s platform. The terms of service define the rights and responsibilities of pet care providers and pet parents 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 care services between the pet parent and the pet care provider on the Company’s platform (a booking) 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 care provider and the Company upon the creation of a booking and after the pet care providers’ cancellation period has lapsed. Pet care providers are considered the Company’s customers to the extent that they pay a fixed percentage fee, generally up to a fixed dollar amount, to the Company for the booking. Similarly, pet parents are considered the Company’s customers and a contract exists between the pet parent and the Company upon the creation of a booking and after the pet care providers’ stated cancellation period has lapsed. Pet parents pay for services at the time of booking.
The Company considers the facilitation of the connection between pet care 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 care 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 care provider and a pet parent. As such, the Company has determined that its sole performance obligation is to facilitate a connection between pet care 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 care provider and pet parent have completed a booking, any related cancellation period has lapsed, and the related underlying pet care services have begun. The Company derives revenue from pet care providers and pet parents primarily in the United States, as well as Canada, the United Kingdom and Western Europe.
Judgment is required in determining whether the Company is the principal or agent in transactions with pet care providers and pet parents. The Company evaluates the presentation of revenue on a gross or net basis based 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 care providers and pet parents because, among other factors, it is not responsible for the delivery of pet care services provided by the pet care 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 access to the Company’s platform to pet care 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.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Provider Onboarding Revenue
The Company earns revenue from non-refundable provider onboarding fees by completing quality assurance reviews of new pet care provider profiles including obtaining background checks, which are performed by a third party. Pet care providers pay the onboarding fee at the time of sign up. The Company recognizes revenue related to provider onboarding services at a point-in-time upon satisfaction of the related performance obligation, determined to be the completion of the quality assurance review of the pet care provider’s profile including a background check. The Company is considered to be a principal in these transactions and recognizes revenue on a gross basis. Costs associated with performing the pet care provider onboarding review are recognized in cost of revenue (exclusive of depreciation and amortization shown separately).
Payments to Customers
From time to time, the Company makes payments to pet parents and pet care providers as part of its marketing promotions, incentive programs and refund activities.
Marketing Promotions and Incentive Programs
The Company encourages the use of its platform and attracts new customers through its marketing promotions and incentive programs. The Company uses marketing promotions in tandem with sales and marketing spend to attract new pet parents to its platform. Promotions offered to pet parents in the form of credits, coupons or discounts are recorded as a reduction of revenue or included in marketing expense.
The Company offers referral credits to its existing pet parents or pet care providers for referrals of new pet parents or pet care providers. These referral credits are paid in exchange for a distinct marketing service and therefore the portion of these credits that is equal to or less than the cost of acquiring a new pet parent or pet care provider are accounted for as a customer acquisition cost. These new customer acquisition costs are expensed as incurred and reflected as marketing expenses in the Company’s condensed consolidated statements of operations. The portion of these credits in excess of the fair value of acquiring a new pet parent or pet care provider is accounted for as a reduction of revenue.
On occasion, the Company offers promotional discounts to existing pet parents. The Company records incentives provided to existing pet parents as a promotion and reduces revenue on the date that the corresponding revenue transaction is recorded.
Refunds
In certain instances, the Company issues refunds to pet parents as part of its customer support activities for customer satisfaction matters in the form of credits to be applied toward a future booking. The Company accounts for such refunds as variable consideration and therefore records the amount of each refund or credit issued as a reduction of revenue.
Pet Parent Deposits and Pet Care 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 settled through our payment processor and derecognized. In addition, we hold pet care provider liabilities relating to bookings completed prior to the implementation of our current payment processor and related systems where payment has not yet been requested by the pet care provider. The Company is subject to compliance with escheat laws applicable by jurisdiction where pet care providers do not claim the amounts owed to them for services rendered.
Rover Guarantee
In connection with services provided to facilitate the connections between pet care provider and pet parent, the Company provides a contractual guarantee to reimburse pet parents or pet care providers for certain expenses arising from injuries or other damages incurred during a service booked through the Company’s platform, subject to specified conditions (the “Rover Guarantee”). The Company’s obligation under the Rover Guarantee is accounted for in accordance with Accounting Standards Codification (“ASC”) 460, Guarantees. As a result, the Company estimates the fair value of the liability incurred in connection with providing the Rover Guarantee and records such amounts in accrued expenses and other current liabilities within the Company’s condensed consolidated balance sheets.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Marketing

Advertising expenses were $9.7 million and $27.4 million during the three and nine months ended September 30, 2023, respectively, and $6.3 million and $20.4 million during the three and nine months ended September 30, 2022, respectively.
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. The Company 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. Management determined that the Company has two reporting units for which goodwill has been assigned for the evaluation of goodwill impairment, the Rover and GoodPup component business units.
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 each 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 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. See Note 2—Summary of Significant Accounting Policies—Interim Impairment Assessment for additional information regarding the interim impairment assessment.
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 cost 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. See Note 2—Summary of Significant Accounting Policies—Interim Impairment Assessment for additional information regarding the interim impairment assessment.
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.

Interim Impairment Assessment
During the quarter ended June 30, 2023, management identified various qualitative factors such as downward revisions to business forecasts and trends of adverse macroeconomic conditions on the GoodPup business performance that collectively indicated it is more-likely-than-not that the goodwill and intangible assets of the GoodPup reporting unit and asset group fair values were less than their carrying amounts as of June 30, 2023. It had previously been determined by the Company that GoodPup’s reporting unit and the asset group for assessing impairment of long-lived assets are the same. As a result, the Company performed an interim quantitative impairment assessment for goodwill in accordance with ASC 350, Intangibles—
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Goodwill and Other, and intangible assets in accordance with ASC 360, Property, Plant, and Equipment. The June 30, 2023 quantitative impairment tests indicated a decline in the fair value of the GoodPup reporting unit and asset group, resulting in a non-cash impairment charge of $6.9 million to write off goodwill and intangible assets in full. Impairment charges are included in impairment loss on intangible assets and goodwill in the condensed consolidated statements of operations.
The Company’s remaining goodwill and intangible asset balance as of September 30, 2023 relates to the Company’s prior acquisitions within the Rover reporting unit, for which the Company concluded it was not more-likely-than-not that fair values were less than carrying amounts at September 30, 2023.
The Company estimated the fair value of the GoodPup asset group and reporting unit using the income approach. Such fair value measurements are based predominately on Level 3 inputs. Inherent in the Company’s development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. Management also makes certain assumptions about future economic conditions and other data. Many of these factors used in assessing fair value are outside the control of management.
Restricted Cash
The Company classifies any cash balances that are restricted as to withdrawal or usage as restricted cash on the condensed consolidated balance sheets. In connection with the Company’s noncancellable Seattle headquarters lease agreement, which expires in 2030, the Company is required to hold a $3.7 million collateral account to secure the associated $3.5 million letter of credit, which is reflected in the restricted cash balance as of September 30, 2023, and for the duration of the lease. Upon the expiration of the lease agreement, the restriction will be lifted and the amounts will return for the general usage of the Company. See Note 9—Commitments and Contingencies for more information regarding the Company’s letters of credit.
Net Income (Loss) Per Share Attributable to Common Stockholders
The Company calculates basic and diluted net income (loss) per share attributable to common stockholders in conformity with the two-class method required for participating securities. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of common stock outstanding for the periods presented, without consideration for potentially dilutive securities. Diluted net income (loss) per share is calculated by giving effect to all potential weighted average dilutive common stock. The dilutive effect of outstanding awards and convertible securities is reflected in diluted net income (loss) per share by application of the treasury stock method or if-converted method, as applicable.
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. The Company has elected to adopt new or revised accounting guidance within the same time period as public business entities, as indicated below.
In March 2022, the FASB issued ASU No. 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendment in this ASU provides an update to: (1) troubled debt restructurings guidance in Subtopic 310-40 and enhances disclosure requirements for certain loan refinancings and restructurings; and (2) requires public entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases. The guidance is effective for the Company for the year beginning after December 15, 2022. The Company adopted this standard on January 1, 2023 using the prospective transition method. The adoption of the new standard did not have a material impact on the Company’s condensed consolidated financial statements.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Recently Issued Accounting Pronouncements
In June 2022, the FASB issued ASU No. 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction. The amendment in this ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This amendment also requires public entities to add certain disclosures for equity securities subject to contractual sale restrictions. The guidance is effective for the Company for the year beginning after December 15, 2023. The Company will adopt this standard on January 1, 2024 using the prospective transition method. The Company does not expect the adoption of the new standard to have a material impact on the Company’s condensed consolidated financial statements but will continue to evaluate the new standard in future accounting periods.
3. Business Combinations
On June 15, 2022, the Company acquired all issued and outstanding stock of GoodPup, an early-stage company that operates a virtual dog training platform. The transaction was accounted for as a business combination. The total purchase price for this acquisition of $7.4 million included a $1.6 million holdback for indemnity and subsequent adjustments that is expected to be paid within the 18-month holdback period. The purchase price was provisionally allocated as follows: $4.4 million to intangible assets (see Note 8—Goodwill and Intangible Assets for more information), ($1.0) million to net assets and liabilities assumed based on their estimated fair value on the acquisition date, and the remaining $4.0 million to goodwill. The goodwill from the acquisition was mainly attributable to expected synergies and other benefits. The goodwill was not tax deductible. The intangible assets were amortized on a straight-line basis over their estimated useful lives of three to five years.

During the fourth quarter of 2022, the Company obtained additional information during the measurement period that existed as of the acquisition date and recorded adjustments to the preliminary purchase price allocation that resulted in a decrease of $0.2 million to goodwill, $0.1 million to net liabilities assumed, and $0.1 million to the holdback liability. The adjustment did not have a material impact on the Company’s consolidated statements of operations.

Certain employees hired in conjunction with the acquisition received restricted stock unit awards and retention bonuses that are subject to service conditions. The Company accounted for these awards and bonuses as a post-business combination expense.

The Company incurred no acquisition-related costs during the three and nine months ended September 30, 2023. The Company incurred no acquisition-related costs during the three months ended September 30, 2022 and $0.4 million in acquisition-related costs during the nine months ended September 30, 2022, which were included in general and administrative expenses in the consolidated statement of operations.

The results of operations for this acquisition have been included in the Company’s consolidated statements of operations since the date of acquisition. Actual and pro forma revenue and results of operations for the acquisition have not been presented because they did not have a material impact on the consolidated results of operations.
During the second quarter of 2023, the Company recorded a non-cash impairment charge related to GoodPup of $6.9 million to write off goodwill and intangible assets in full. There were no other non-cash impairment charges for the three and nine months ended September 30, 2023 and 2022. See Note 2—Summary of Significant Accounting Policies—Interim Impairment Assessment and Note 8—Goodwill and Intangible Assets for more information.
4. Revenue Recognition
Contract Balances
Contract liability balances on the Company’s condensed consolidated balance sheets consist of deferred revenue for amounts collected upon the completion of a booking. Deferred revenue is limited to the amount which the Company expects to recognize as revenue and the amounts expected to be paid out to pet care providers are separately presented as pet parent deposits on the Company’s condensed consolidated balance sheets, as those amounts will not result in revenue recognized. The deferred revenue balance is reduced by the amount of credits, coupons, or discounts to the extent that they are expected to reduce the revenue recognized upon satisfaction of the performance obligation. Substantially all of the deferred revenue as of
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
September 30, 2023 relates to bookings that begin within the next twelve months, at which time revenue will be recognized, unless the booking is canceled during the pet care provider’s cancellation period.

The changes in the Company’s deferred revenue balances were as follows (in thousands):

Balance at June 30, 2023$16,390 
Bookings and other62,858 
Revenue recognized(66,136)
Balance at September 30, 2023
$13,112 
Balance at December 31, 2022
$5,544 
Bookings and other174,150 
Revenue recognized(166,582)
Balance at September 30, 2023
$13,112 
Substantially all deferred revenue as of June 30, 2023 and December 31, 2022 was recognized as revenue during the three and nine months ended September 30, 2023, respectively.
5. Investments
The Company’s investments include available-for-sale investments, convertible notes, and equity investments without a readily determinable fair value. Available-for-sale investments consist of marketable 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 investments and unrealized gains and losses were as follows (in thousands):
September 30, 2023
Amortized CostsGross Unrealized GainsGross Unrealized LossesFair Value
Marketable securities:
Commercial paper$8,020 $— $(5)$8,015 
Corporate securities36,207 — (37)36,170 
US Government securities42,427 — (121)42,306 
Asset-backed securities4,746 — (7)4,739 
Agency bonds9,205 — (16)9,189 
Certificate of deposit1,321 — — 1,321 
Total marketable securities101,926 — (186)101,740 
Total investments$101,926 $— $(186)$101,740 
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
December 31, 2022
Amortized CostsGross Unrealized GainsGross Unrealized LossesFair Value
Marketable securities:
Commercial paper$54,851 $— $(51)$54,800 
Corporate securities38,260 — (220)38,040 
US Government securities108,551 — (792)107,759 
Asset-backed securities8,269 — (35)8,234 
Agency bonds4,989 — (12)4,977 
Total marketable securities214,920 — (1,110)213,810 
Other investments:
Convertible notes1,810 — — 1,810 
Total other investments1,810 — — 1,810 
Total investments$216,730 $— $(1,110)$215,620 
Unrealized losses of the Company’s available-for-sale securities that have been in a continuous unrealized loss position for twelve months or longer were immaterial as of September 30, 2023 and December 31, 2022.

The contractual maturity of the available-for-sale investments were as follows (in thousands):

September 30, 2023
Within 1 year1 to 5 yearsMore than 5 yearsTotal
Marketable securities:
Commercial paper$8,015 $— $— $8,015 
Corporate securities13,419 22,751 — 36,170 
US Government securities42,306 — — 42,306 
Asset-backed securities572 4,167 — 4,739 
Agency bonds9,189 — — 9,189 
Certificate of deposit1,321 — — 1,321 
Total marketable securities74,822 26,918 — 101,740 
Total investments$74,822 $26,918 $— $101,740 

December 31, 2022
Within 1 year1 to 5 yearsMore than 5 yearsTotal
Marketable securities:
Commercial paper$54,800 $— $— $54,800 
Corporate securities32,767 5,273 — 38,040 
US Government securities101,289 6,470 — 107,759 
Asset-backed securities— 8,234 — 8,234 
Agency bonds2,491 2,486 — 4,977 
Total marketable securities191,347 22,463 — 213,810 
Other investments:
Convertible notes1,810 — — 1,810 
Total other investments1,810 — — 1,810 
Total investments$193,157 $22,463 $— $215,620 
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities for both the three and nine months ended September 30, 2023 and 2022. The unrealized losses on investments in fixed-maturity securities were caused primarily by interest rate changes. It is expected that the securities would not be settled at a price less than par value of the investments. Because the declines in fair value are attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability to hold its available-for-sale investments until a market price recovery or maturity, the Company has not recognized any credit loss reserves as of September 30, 2023 and December 31, 2022.
Equity investments without a readily determinable fair value consist of equity securities that are accounted for at cost, with adjustments for observable changes in prices or impairments, and are classified within the caption investment in equity securities in related parties in the condensed consolidated balance sheet with any adjustments recognized as a component of change in fair value of other investments in the condensed consolidated statements of operations. As of September 30, 2023, these investments had a carrying value of $3.8 million. The Company did not hold any equity investments without a readily determinable fair value as of December 31, 2022. Each reporting period, the Company performs a qualitative assessment to evaluate whether the investment is impaired. This assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. If the investment is impaired, the Company would write it down to its estimated fair value. The Company did not recognize any impairments to equity investments during the three and nine months ended September 30, 2023.
Other Investments
Convertible Notes and Equity Investments (Related Party Transaction)
In July 2022, the Company entered into transaction agreements with Pioneer Square Labs (“PSL”) and entities affiliated with PSL, a start-up studio and venture capital fund of which one of the Company’s directors, Greg Gottesman, is a managing director and co-founder. The Company with PSL co-invested in an early-stage company that provides a service for pet parents that is complementary to the Company’s current offerings (the “Investee”). The Company contributed intellectual property in the form of a nonexclusive license agreement in exchange for 5,000,000 shares of common stock, which represents 15% of the Investee’s diluted outstanding equity as of September 30, 2023. The Company accounts for this investment under the equity method as it has significant influence over the Investee but does not hold a controlling financial interest.
In July 2022, in conjunction with the agreements, the Company made an initial investment of $1.0 million in the Investee in the form of a convertible note, which had a maturity date of July 2023. Subsequently, the Company invested an additional $0.3 million and $0.5 million in the form of convertible notes during September 2022 and November 2022, respectively. As of November 2022, all investments in the form of convertible notes were amended to mature in November 2023. The convertible notes accrued interest at a rate of 5% per year and were payable upon the maturity dates. The Company elected to measure these convertible notes at fair value with changes in fair value reported in earnings.
In June 2023, the Company converted the entire balance of its convertible note investments into 4,162,357 shares of Series Seed Preferred Stock of the Investee according to the terms of the notes’ conversion feature at a discounted conversion price of $0.4507 per share. The fair value of the convertible notes at the conversion date was determined to be equal to fair value of the shares of Series Seed Preferred Stock received upon conversion, which was $2.3 million. The adjusted carrying value of the investment was reclassified from notes receivable from related parties to investment in equity securities in related parties in the condensed consolidated balance sheets as a result of the conversion. The Company recognized total fair value adjustments of $0.0 million and $1.1 million within change in fair value of other investments on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. No incremental fair value adjustment was recorded for the three and nine months ended September 30, 2022. There were no impairment charges for the three and nine months ended September 30, 2023 and 2022. See Note 6—Fair Value for more information on the fair value of the convertible notes.
In June 2023, simultaneous to the note conversion the Company also invested an additional $1.5 million in the Investee in exchange for 2,662,406 shares of Series Seed Preferred Stock at a price of $0.5634 per share. As of September 30, 2023 the carrying value of the Company’s aggregate Series Seed Preferred Stock investment was $3.8 million, as recorded in investment in equity securities in related parties within the condensed consolidated balance sheets. As the Company’s basis in the Investee’s common stock as accounted for under the equity method was valued at zero, the Company’s proportionate share of losses resulted in a reduction to the carrying value of the convertible note investments prior to the conversion event as well as a reduction to the carrying value of the Series Seed Preferred Stock investment subsequent to the conversion event. For the three
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
and nine months ended September 30, 2023, the Company recorded losses of $0.3 million and $1.0 million, respectively, within loss from equity method investments in the condensed consolidated statements of operations, representing its proportionate share of net income or loss based on the Investee’s financial results. For both the three and nine months ended September 30, 2022, the Company recorded losses of $0.3 million within loss from equity method investments in the condensed consolidated statements of operations, representing its proportionate share of net income or loss based on the Investee’s financial results.
PSL and the Company have equivalent minority ownership positions in the Investee, and have customary rights afforded to investors in venture-backed companies. PSL has been, and will continue to be, reimbursed for certain corporate costs by the entity and will provide, and be compensated for, certain services to the entity. For the three and nine months ended September 30, 2023, the amount reimbursed to PSL by the Investee for in-house services provided and other expenses was immaterial. Mr. Gottesman is not on the board of the Investee and will not serve on its board unless approved by the Company’s board of directors. Mr. Gottesman holds a minority position in PSL.
6. 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):
September 30, 2023
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$17,800 $— $— $17,800 
US Government securities— 6,969 — 6,969 
Investments:
Commercial paper— 8,015 — 8,015 
Corporate securities— 36,170 — 36,170 
US Government securities— 42,306 — 42,306 
Asset-backed securities— 4,739 — 4,739 
Agency bonds— 9,189 — 9,189 
Certificate of deposit— 1,321 — 1,321 
Total assets measured at fair value$17,800 $108,709 $— $126,509 
December 31, 2022
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$23,006 $— $— $23,006 
Commercial paper— 7,954 — 7,954 
Investments:
Commercial paper— 54,800 — 54,800 
Corporate securities— 38,040 — 38,040 
US Government securities— 107,759 — 107,759 
Asset-backed securities— 8,234 — 8,234 
Agency bonds— 4,977 — 4,977 
Other investments:
Convertible notes— — 1,810 1,810 
Total assets measured at fair value$23,006 $221,764 $1,810 $246,580 
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table provides a reconciliation of the beginning and ending balances for the Level 3 financial assets measured at fair value using significant unobservable inputs (in thousands):
Convertible Notes
Balance at December 31, 2022$1,810 
Additions during the period— 
Proportionate share of equity method losses(266)
Incremental change in fair value801 
Conversion into investment in equity securities in related party(2,345)
Balance at September 30, 2023$— 
The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period. There were no transfers of financial instruments between valuation levels during the periods presented.
The Company classifies financial instruments as Level 2 within the fair value hierarchy which 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.
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.
Valuation of Convertible Note Investments
As described in Note 5—Investments—Other Investments—Convertible Notes and Equity Investments (Related Party Transaction), the Company previously held convertible note investments in the Investee that were measured at fair value. As of December 31, 2022, these convertible notes were held at a fair value of $1.8 million. In June 2023, the convertible note investments converted into shares of Series Seed Preferred Stock and the Company no longer held a convertible note investment as of September 30, 2023. The fair value of the notes was based predominantly on the credit quality of the underlying business and its ability to repay principal and interest, as well as the potential outcome of future equity financing transactions that may trigger the conversion feature provided by the notes. The fair value of the convertible notes at the conversion date was determined to be equal to fair value of the shares of Series Seed Preferred Stock received upon conversion, which was $2.3 million.
Valuation of Private Placement Warrant Derivative Liability
In December 2021, the Company announced that, pursuant to the terms of the Warrant Agreement, it would redeem all of the outstanding private placement warrants (“Private Warrants”) held by Nebula Caravel Holdings, LLC, the sponsor of Caravel and a greater than five percent stockholder of the Company (the “Sponsor”), and public warrants (“Public Warrants” and, collectively with the Private Warrants, “Warrants”) that remained outstanding at 5:00 p.m. New York City time on January 12, 2022 (the “Redemption Date”).
In January 2022, the Company issued 2,046,220 shares of the Company’s Class A common stock, par value $0.0001 per share (“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 (the “Redemption Price”). 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
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 September 30, 2023, no warrant liabilities were outstanding as the related carrying amount of the warrant liability was reclassified to stockholders’ equity during the first quarter 2022.
7. Balance Sheet Components
Property and Equipment, net
The following table presents the detail of property and equipment, net as follows (in thousands):
September 30,
2023		December 31,
2022
Computers$1,547 $1,452 
Furniture and fixtures3,799 3,777 
Leasehold improvements13,479 13,808 
Internal-use software24,485 21,652 
Asset retirement obligation225 225 
Total property and equipment43,535 40,914 
Less:  Accumulated depreciation and amortization(24,274)(21,396)
Total property and equipment, net$19,261 $19,518 

Depreciation and amortization of property and equipment was $1.0 million and $3.0 million during the three and nine months ended September 30, 2023, respectively, and $1.0 million and $2.9 million during the three and nine months ended September 30, 2022, respectively. Depreciation and amortization of property and equipment was recorded to depreciation and amortization in the condensed consolidated statements of operations. The Company capitalized $2.6 million and $7.7 million of software development costs for the three and nine months ended September 30, 2023, respectively, and $2.4 million and $6.5 million for the three and nine months ended September 30, 2022. Internal-use software amortization was $1.9 million and $5.4 million during the three and nine months ended September 30, 2023, respectively, and $1.7 million and $5.2 million during the three and nine months ended September 30, 2022, respectively. Internal-use software amortization was recorded to cost of revenue (exclusive of depreciation and amortization shown separately) in the condensed 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):
September 30,
2023		December 31,
2022
Income and other tax liabilities$2,101 $1,670 
Accrued legal expenses and open claims917 686 
Accrued legal settlements (1)
— 18,000 
Accrued professional services696 435 
Holdback related to business combination1,343 1,343 
Accrued share repurchase553 — 
Coupon liabilities317 205 
Other current liabilities564 355 
Total accrued expenses and other current liabilities$6,491 $22,694 
__________________
(1)See Note 9—Commitments and Contingencies for more information.

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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Employee Retention Credit
The employee retention credit (“ERC”), as originally enacted through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020, is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer paid to employees from March 17, 2020 to December 31, 2020. The Disaster Tax Relief Act, enacted on December 27, 2020, extended the ERC for qualified wages paid from January 1, 2021 to June 30, 2021, and the credit was increased to 70% of qualified wages an eligible employer paid to employees during the extended period. The American Rescue Plan Act of 2021, enacted on March 11, 2021, further extended the ERC through December 31, 2021.
In the second quarter 2022, the Company filed an application with the U.S. Internal Revenue Service (“IRS”) for the ERC. Employers are eligible for the credit if they experienced full or partial suspension or modification of operations during any calendar quarter because of governmental orders due to the COVID-19 pandemic or a significant decline in gross receipts based on a comparison of quarterly revenue results for 2020 and/or 2021 with the comparable quarter in 2019. The Company’s ERC application was equal to 70% of qualified wages paid to employees during the period from January 1, 2021 to June 30, 2021 for a maximum quarterly credit of $7,000 per employee. On July 3, 2023, the Company recorded other income of $1.9 million related to the realization of the credit in the second quarter 2023. Consulting fees associated with the ERC application were immaterial. The Company’s eligibility remains subject to audit by the IRS for a period of five years.
The Company accounted for the ERC by analogy to ASC 450-30, Gain Contingencies and ASC 855, Subsequent Events. As the notice of refund and receipt of cash from the IRS was received on July 3, 2023, the Company determined the notice of refund affected the realization of the anticipated ERC and therefore, the ERC was recognized as a receivable as of the balance sheet date.
The Company recorded the $1.9 million ERC in the second quarter of 2023 within prepaid expenses and other current assets in the condensed consolidated balance sheets and within other income (expense), net on the condensed consolidated statements of operations. The Company has not recorded additional calculated quarterly credits as income as of September 30, 2023 because it is not reasonably certain further amounts will be collected due to the delayed processing and enhanced scrutiny of applications submitted before September 14, 2023 as announced by the IRS in September 2023.
8. Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in the carrying amount of goodwill (in thousands):
Balance at December 31, 2022$36,915 
GoodPup Impairment(3,756)
Balance at September 30, 2023$33,159 
During the second quarter of 2023, the Company recorded a non-cash impairment charges of $3.8 million to write off goodwill in full for the GoodPup reporting unit. Impairment charges were included in impairment loss on intangible assets and goodwill in the condensed consolidated statements of operations. See Note 2—Summary of Significant Accounting Policies—Interim Impairment Assessment for more information.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Intangible Assets
The gross book value, accumulated amortization, and impairment of intangible assets were as follows (in thousands):
September 30, 2023
Gross Book
Value		Accumulated
Amortization 		ImpairmentNet Book
Value
Pet parent relationships$6,600 $(4,089)$— $2,511 
Shelter relationships776 (155)(621)— 
Technologies1,696 (565)(1,131)— 
Tradenames1,302 (260)(1,042)— 
Training curriculum551 (184)(367)— 
Total$10,925 $(5,253)$(3,161)$2,511 
December 31, 2022
Gross Book
Value		Accumulated
Amortization		ImpairmentNet Book
Value
Pet parent relationships$6,600 $(3,478)$— $3,122 
Shelter relationships834 (135)— 699 
Technologies1,696 (283)— 1,413 
Tradenames1,302 (130)— 1,172 
Training curriculum551 (92)— 459 
Total$10,983 $(4,118)$— $6,865 
The weighted average amortization period remaining as of September 30, 2023 for each class of intangible assets were as follows (in years):
Pet parent relationships3.1
Amortization expense related to acquired intangible assets during the three and nine months ended September 30, 2023 was $0.2 million and $1.2 million, respectively, and $0.6 million and $1.5 million during the three and nine months ended September 30, 2022.

During the second quarter of 2023, the Company recorded impairment charges of $3.2 million to write off intangible assets in full, related to acquired tradenames, shelter relationships, training curriculum and developed technology from the GoodPup asset group. Impairment charges are included in impairment loss on intangible assets and goodwill in the condensed consolidated statements of operations. See Note 2—Summary of Significant Accounting Policies—Interim Impairment Assessment for more information.

Based on amounts recorded at September 30, 2023, the Company estimates intangible asset amortization expense in each of the years ending December 31 as follows (in thousands):
Remainder of 2023$204 
2024814 
2025814 
2026679 
Thereafter— 
Total$2,511 
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
9. Commitments and Contingencies
Leases
The Company leases certain office space in Seattle and Spokane, Washington with lease agreements expiring between 2026 and 2030. 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 one to seven years. These renewal options have not been considered in the determination of the right-of-use (“ROU”) assets and lease liabilities associated with these leases as the Company has determined it is not reasonably certain it will exercise such options.

The Company also has coworking leases in Barcelona, Spain and San Antonio, Texas, which are included in short-term lease costs.
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, which was subsequently amended to extend the term for an additional two years in February 2020. In May 2022, the Company amended the sublease to extend the term for an additional one year. In December 2022, the Company amended the sublease to extend the term for one additional year. As of September 30, 2023, under the terms of the amended sublease agreement, the Company will receive $0.7 million in base lease payments plus reimbursement of certain operating expenses over the remaining term of the sublease, which ends in October 2024.
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. As of September 30, 2023, under the terms of the amended sublease agreement, the Company will receive $0.5 million in base lease payments plus reimbursement of certain operating expenses over the remaining term of the sublease, which ends in August 2024. In October 2023, the Company amended the sublease to extend the term for one additional year to August 2025.

Sublease income is recognized on a straight-line basis over the sublease term and is recorded as a reduction to operating lease cost within general and administrative costs in the condensed consolidated statements of operations.
The components of lease cost were as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Operating lease cost$982 $1,054 $2,944 $3,178 
Short-term lease cost171 39 495 39 
Sublease income(296)(297)(888)(903)
Total lease cost$857 $796 $2,551 $2,314 
Other information related to leases was as follows (in thousands):
Nine Months Ended September 30,
20232022
Cash paid for operating lease liabilities$3,643 $3,471 
Lease term and discount rate were as follows:
As of
September 30, 2023
As of
December 31, 2022
Weighted-average discount rate7.30 %7.27 %
Weighted-average remaining lease term (years)6.116.82
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Maturities of lease liabilities were as follows as of September 30, 2023 (in thousands):
Year Ending December 31
Amounts
Remainder of 2023
$759 
20244,569 
20254,693 
20264,430 
20274,353 
Thereafter9,430 
Total lease payments28,234 
Less: imputed interest(5,678)
Present value of lease liabilities22,556 
Less: current portion of lease liabilities(2,613)
Total lease liabilities, noncurrent$19,943 
Letters of Credit
The Company maintains a $3.5 million secured letter of credit from a third-party financial institution related to the security deposit on its Seattle headquarters office space. The letter of credit is secured by a $3.7 million cash collateral account that is included as restricted cash on the condensed consolidated balance sheets. Additionally, the Company maintains a $0.1 million unsecured letter of credit from a third-party financial institution related to the security deposit on its Spokane office space.

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 condensed consolidated financial statements and maintains director and officer insurance coverage that would generally enable it to recover a portion of any future amounts paid for director and officer indemnification obligations.
Litigation and Other Contingencies
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 types of claims, class action and representative 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 and Safety team receives claims pursuant to the Rover Guarantee, as well as claims and threats of legal action that arise from pet care 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 care providers, and third parties.

The Company regularly evaluates the status of legal proceedings and regulatory matters 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 condensed consolidated financial statements indicates it is probable a loss has been incurred as of the date of the condensed consolidated financial statements and the amount of loss can be reasonably estimated. 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, claims and regulatory matters are inherently unpredictable, management concluded, based on currently available information, that other than with
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
respect to the case discussed below there was not a reasonable possibility that the Company had incurred a material and estimable loss during the periods presented related to such loss contingencies.
On August 22, 2018, a pet care 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, alleging various wage and hour claims under the California Labor Code, and seeking injunctive relief, civil penalties, attorney’s fees, and other forms of relief. After the Company successfully removed the case to the U.S. District Court for the Northern District of California (the “District Court”), another pet care provider was substituted as plaintiff in the case, subsequently captioned Melanie Sportsman v. A Place for Rover, Inc. On May 6, 2021, the District Court granted the Company’s motion for summary judgment and entered judgment in the Company’s favor, closing the case, but the plaintiff filed a notice of appeal of the District Court’s dismissal with the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). Following oral argument before the Ninth Circuit on August 29, 2022, the Company and the plaintiff engaged in settlement discussions and mediations resulting in a binding settlement term sheet between the Company and the named plaintiff on October 20, 2022. The Company recorded the $18.0 million total settlement payment provided for in the binding settlement term sheet under general and administrative expense in the condensed consolidated statements of operations for the three months ended September 30, 2022 and within accrued expenses and other current liabilities on the condensed consolidated balance sheets as of September 30, 2022. At the parties’ request, the Ninth Circuit dismissed the appeal without prejudice and remanded to the District Court for settlement approval, subject to reinstatement with the Ninth Circuit in the event the District Court declined to approve the settlement. On January 12, 2023, the Company and the named plaintiff entered into a comprehensive settlement agreement and release of claims pursuant to which the Company agreed to make the total settlement payment of $18.0 million, which included all related settlement costs, in full and final settlement of all claims that the named plaintiff and members of a proposed settlement class and a PAGA group brought or could have brought in the litigation, including claims under PAGA, the California Labor Code, and similar statutes through the District Court’s final order approving the settlement agreement. The settlement class consisted of all pet care providers who performed at least one service in California booked through the Rover platform during the period from November 1, 2018 through February 7, 2023, the date on which the motion for preliminary approval of the settlement was filed with the District Court. In addition, pet care providers who performed at least one service in California booked through the Rover platform between June 11, 2017 and February 7, 2023 received more limited relief related to PAGA included as part of the overall settlement. The Company also agreed to modify the Rover platform to make certain changes applicable to pet care providers in California to bolster the classification of pet care providers who use the Rover platform as independent contractors under California law. On July 24, 2023, the District Court issued its order granting final approval of the settlement agreement. The settlement subsequently became final as there were no appeals or requests for review filed within 31 days after the District Court’s order granting final approval. On September 1, 2023, the Company paid the remaining $17.9 million total settlement payment from cash and cash equivalents. In settling the case, the Company did not admit to any wrongdoing or liability.
While litigation is inherently unpredictable and the ultimate outcomes cannot be predicted with certainty, the Company believes it has valid defenses with respect to the legal matters pending against it. Nevertheless, the Company’s condensed consolidated financial statements could be materially adversely affected in a particular period by the resolution of one or more of these contingencies. Accrued 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 condensed consolidated statements of operations during the period of the change and reflected in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets. Until the final resolution of legal matters, there may be an exposure to losses in excess of the amounts accrued. 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.
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 pet care providers who use online marketplaces are uncertain, unfavorable or unclear.
Additionally, from time to time, the Company has been or may become subject to audit by taxing authorities or subject to other forms of inspection or audit, including audits related to employment classification. 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 condensed consolidated financial statements.

As of September 30, 2023, 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 effect on its condensed consolidated financial statements.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
10. Stockholders’ Equity
Public and Private Warrants
In January 2022, the Company issued Class A Common Stock related to the December 2021 and January 2022 cashless exercise of the Warrants. See Note 6—Fair Value for more information.

The Warrants were classified as a 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 cashless exercise of such Warrants to Class A Common Stock, the related carrying amount of the warrant liability was reclassified to stockholders’ equity.
Share Repurchase Program
In February 2023, the Company announced that its board of directors approved a 12-month share repurchase program with authorization to purchase up to $50.0 million (exclusive of brokers’ commissions and expenses) of the Class A Common Stock (the “Share Repurchase Program”). See Note 14—Subsequent Events for a discussion of the November 2023 extension of the Share Repurchase Program. Under the Share Repurchase Program, repurchases may be made on a discretionary basis from time to time, subject to general business and market conditions, through open market transactions (including through Rule 10b5-1 trading plans) or through privately negotiated transactions in accordance with applicable securities laws and other legal requirements, including the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All shares repurchased under the Share Repurchase Program are retired and returned to authorized and unissued status. The repurchases are funded from existing cash and cash equivalents and investments. The Share Repurchase Program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The Share Repurchase Program may be modified, suspended, or terminated at any time at the discretion of the Company’s board of directors.
When shares are repurchased for retirement, the cost of the repurchased shares is deducted from stockholders’ equity, with their par value being deducted from common stock and the excess of the repurchase cost over the par value being deducted from accumulated deficit. The Company excludes shares repurchased but not yet settled from the calculation of basic and diluted earnings per share.
The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. Excise tax accrued was $0.1 million and $0.2 million for the three and nine months ended September 30, 2023, respectively.
The following table presents the open-market share purchase activity for the three and nine months ended September 30, 2023 and 2022, exclusive of brokers’ commissions and excise tax (in thousands, except share and per share data):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Total number of shares purchased3,470,715 — 7,749,117 — 
Average price paid per share$5.88 $— $5.16 $— 
Total cost$20,400 $— $39,981 $— 
11. Stock-Based Compensation
2021 Equity Incentive Plan
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 September 30, 2023, the Company had 8.7 million shares of Class A Common Stock reserved for future issuance under the 2021 Plan, which includes
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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.
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, 2022
7,881 
Equity awards authorized9,226 
Equity awards granted(10,239)
Equity awards canceled and forfeited871 
Equity awards withheld under net share settlement1,010 
Balances as of September 30, 2023
8,749 
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
Balance as of December 31, 2022
14,363 $1.71 4.9$28,251 
Options exercised(1,960)1.49 
Options canceled and forfeited(287)2.31 
Balances as of September 30, 2023
12,116 $1.73 4.3$54,894 
Options vested and exercisable as of September 30, 2023
11,742 $1.72 4.2$53,349 
There were no options granted during the nine months ended September 30, 2023 and 2022.
The aggregate intrinsic value of stock options exercised during the three and nine months ended September 30, 2023 was $1.8 million and $6.4 million, respectively, and was $0.3 million and $12.5 million for the three and nine months ended September 30, 2022, respectively.
The fair value of options vested during the three and nine months ended September 30, 2023 was $0.2 million and $1.0 million, respectively, and was $0.6 million and $2.1 million for the three and nine months ended September 30, 2022, respectively.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Restricted Stock Units
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 RSU activity is as follows (in thousands, except per share amounts):
Number of
Shares		Weighted-
Average
Grant Date
Fair Value		Aggregate
Intrinsic
Value
Unvested as of December 31, 2022
7,622 $6.22 $27,975 
Granted10,239 4.09 
Vested (1)
(2,942)5.63 
Forfeited(584)5.49 
Unvested as of September 30, 2023
14,335 $4.85 $89,742 
__________________
(1)Includes 1,009,820 shares vested but not issued due to net share settlement for payment of employee taxes. These shares that were withheld under net share settlement remain in the authorized but unissued pool under the 2021 Plan and can be reissued by the Company. Payment of employee taxes due to net share settlement are reflected as a financing activity within the condensed consolidated statements of cash flows.
The total fair value of RSUs vested during the three and nine months ended September 30, 2023 was $6.1 million and $16.6 million, respectively, and was $5.7 million and $11.7 million for the three and nine months ended September 30, 2022, respectively.
Stock-Based Compensation
The following table summarizes stock-based compensation expense recorded in each component of operating expenses in the Company’s condensed consolidated statements of operations for the presented periods (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Operations and support$586 $473 $1,557 $1,214 
Marketing307 302 834 858 
Product development1,588 1,293 4,291 4,157 
General and administrative3,512 2,813 9,754 7,796 
Total stock-based compensation expense$5,993 $4,881 $16,436 $14,025 
No material income tax benefit related to stock-based compensation was recorded during the three and nine months ended September 30, 2023 and 2022 as the Company maintained a full valuation allowance against its net deferred tax assets within the United States.
As of September 30, 2023, total unrecognized compensation cost related to unvested stock options was $0.3 million, which was expected to be recognized over a weighted average remaining service period of 0.5 years. As of September 30, 2023, total unrecognized compensation cost related to unvested RSUs was $66.3 million, which was expected to be recognized over a weighted average remaining service period of 2.9 years.
12. Income Taxes

The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items in the related period. The effective tax rates for the three and nine months ended September 30, 2023 were 1.2% and 2.9%, respectively, and (0.3)% and 0.6% for the three and nine months ended September 30, 2022, respectively. The effective tax rate differs from the statutory rate of 21% primarily due to the full valuation allowance on the U.S. deferred tax assets. The increase in the effective tax rate for the three months ended September 30, 2023 is primarily a function of the $10.9 million pre-tax earnings in the third quarter 2023, compared to the $15.1 million pre-tax loss for the same period of 2022.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The increase in the effective tax rate for the nine months ended September 30, 2023 is primarily a function of $6.8 million pre-tax earnings through the third quarter of 2023 compared to the $27.1 million pre-tax loss for the same period of 2022 coupled with the impact of the U.S. deferred tax benefit related to the GoodPup acquisition recorded in the second quarter of 2022.
During the three and nine months ended September 30, 2023, the amount of gross unrecognized tax benefits increased by $38,500 and $115,500, respectively, of which all, 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.
13. Net Income (Loss) Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net income (loss) per common share attributable to common stockholders (in thousands, except per share amounts):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Numerator:
Net income (loss)$10,500 $(15,472)$5,591 $(27,250)
Denominator:
Weighted-average shares attributable to common stockholders—basic181,423 182,493 183,126 181,309 
Dilutive effect of assumed conversion of stock options and RSUs11,554 — 10,578 — 
Weighted-average shares attributable to common stockholders—diluted192,977 182,493 193,704 181,309 
Net income (loss) per share attributable to common stockholders:
Basic$0.06 $(0.08)$0.03 $(0.15)
Diluted$0.05 $(0.08)$0.03 $(0.15)
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):
Nine Months Ended
September 30,
20232022
Outstanding stock options and RSUs— 23,133 
Sponsor earnout shares
— 492 
Total— 23,625 
The Sponsor earnout shares noted above represent 492,326 unvested shares beneficially owned by the Sponsor and certain of its affiliates that will not vest until the Class A Common Stock achieves a volume weighted average price greater than or equal to $16.00 over any 20 trading days within any 30 trading day period (“Triggering Event III”) during the earnout period that expires in July 2028 (the “Earnout Period”). The Sponsor earnout shares are excluded from basic and diluted net income (loss) per share as Triggering Event III was not achieved as of September 30, 2023.
In addition, 2,192,687 remaining unvested earnout shares are excluded from basic and diluted net income (loss) per share as such shares are contingently issuable until the Class A Common Stock achieves Triggering Event III during the Earnout Period. This share price was not achieved as of September 30, 2023.
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ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
14. Subsequent Events

Share Repurchase Program
Subsequent to the end of the third quarter of 2023 and through the date of issuance of these financial statements, the Company repurchased an additional 1,396,328 shares for a total cost of $9.1 million, excluding brokers’ commissions and excise tax, representing an average purchase price of $6.49 per share.

On November 6, 2023, the Company announced that its board of directors had approved an extension of the Share Repurchase Program to run through February 28, 2025 and an increase to the total authorized amount under the program of up to $100.0 million resulting in a total authorized amount of up to $150.0 million of its Class A Common Stock, including the $49.0 million repurchased through November 1, 2023. Repurchases of the Class A Common Stock may be made on a discretionary basis from time to time through open market transactions (including through Rule 10b5-1 trading plans) or through privately negotiated transactions in accordance with applicable securities laws and other legal requirements, including the requirements of Rule 10b-18 under the Exchange Act. The Share Repurchase Program does not obligate the Company to acquire any specific number of shares of its Class A Common Stock. The timing, volume, purchase price and nature of repurchases will be determined by the Company’s management and depend on a variety of factors, including stock price, trading volume, market and economic conditions, other general business considerations such as alternative investment opportunities, applicable legal requirements and tax laws, and other relevant factors. Repurchases under the program have been authorized through February 28, 2025, but the program may be modified, suspended, or terminated at any time at the discretion of the Company’s board of directors.

The Company expects to fund the repurchases with cash and cash equivalents and investments.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023 and related notes appearing elsewhere in this report and our audited consolidated financial statements as of December 31, 2022 and 2021 and for each of the three years ended December 31, 2022, 2021 and 2020 and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 9, 2023.

Some of the information contained in this discussion and analysis, including information with respect to our plans, estimates and strategy for our business and our expectations regarding future revenue and expense trends and liquidity, includes forward-looking statements based upon current expectations that involve risks and uncertainties. You should read the sections in this report titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Unless the context requires otherwise, references to “Rover,” “the Company,” “we,” “us” and “our” refer to Rover Group, Inc., a Delaware corporation, together with its consolidated subsidiaries.
Overview
We believe in the unconditional love of pets, and Rover exists to make it possible for everyone to experience this love in their lives. Rover exists to give pet parents an alternative to relying on friends and family, neighbors, and commercial providers for pet care. We also exist to give pet care providers a greater opportunity to spend time with pets in their neighborhoods. Our online marketplace for pet care aims to match pet parents with pet lovers who provide excellent pet care while earning extra income. Our simple and easy-to-use platform enables pet parents to easily discover the right pet care providers, book services, communicate with providers, as well as read and write reviews. Our platform enables pet care providers to independently set pricing, create a profile, manage bookings, communicate with pet parents, define the terms and delivery of their services, and receive payment, all in a simple and cost-effective way.

Rover is the world's largest online marketplace for pet care. According to publicly available app reviews and average ratings as of October 2023, we are the world's leading pet services app. We connect pet parents with caring pet care providers who offer overnight services, including boarding and in-home pet sitting, and daytime services, including doggy day care, dog walking, drop-in visits, and dog training. We currently operate in the United States, Canada, the United Kingdom, Spain, France, Sweden, Italy, Germany, Norway, and the Netherlands. Through September 30, 2023, over 4.8 million unique pet parents and over 1 million pet care providers across North America, the United Kingdom, and Western Europe have booked or provided a service on Rover, enabling millions of moments of joy and play for people and pets.
We generate substantially all of our revenue from the Rover platform, our pet care marketplace platform that connects pet parents and pet care providers. We generally collect service fees from both pet parents and pet care providers. We earn more revenue as more pet parents request and pet care providers accept and complete bookings. We also earn revenue from ancillary sources such as provider onboarding fees, virtual pet training services via our GoodPup subsidiary, affiliate fees via our blog, and sales of products in the Rover Store and through other e-commerce platforms.

In support of our mission, we continue to invest in our product and have completed several acquisitions since our inception to help us grow our business and serve more pet parents. We also continue to explore and test new service lines, which we may launch at future dates, and evaluate acquisition and investment opportunities.
Key Business Metrics
In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions. Accordingly, we believe that these key business metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.
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Bookings
We define a booking as a single arrangement between a pet parent and pet care provider on the Rover services marketplace prior to cancellations, which can be for a single night or multiple nights for overnight services, or for a single walk/day/drop-in or multiple walks/days/drop-ins for daytime services. Bookings grow as we attract new pet parents to the platform and as pet parents increase their repeat activity on the platform. We believe that the number of bookings is a useful indicator of the scale of our marketplace. We define new bookings as the total number of first-time bookings that pet parents new to Rover book on our platform during a period. We define repeat bookings as the total number of bookings from pet parents who have ever had a previous booking on Rover, inclusive of pet parents who had their first booking within the same quarter.
Three Months Ended September 30,Nine Months Ended September 30,
20232022Y/Y growth20232022Y/Y growth
(in thousands, except for percentages)
New bookings290 267 8 %776 706 10 %
Repeat bookings1,517 1,234 23 %4,244 3,406 25 %
Total bookings1,807 1,501 20 %5,020 4,112 22 %
Repeat bookings as a % of total bookings84 %82 %85 %83 %
The increase in new bookings for the three and nine months ended September 30, 2023 as compared to the prior year period was driven by continued recovery in travel behavior in our markets, including increased demand in our international markets, product enhancements that have improved engagement on the platform, as well as expanded marketing and partnership efforts. This was especially the case in the United Kingdom and France, as pandemic-related travel restrictions and risk aversion eased relative to the three and nine months ended September 30, 2022, a period which was negatively impacted by the BA.5 variant wave. Although we outpaced this trend for the three and nine months ended September 30, 2023, starting in the second quarter of 2022 and continuing through September 2023, we are seeing the Google query volume for some key search terms, which is correlated to demand from new pet parents, decrease significantly year-over-year as compared to the outsized gains of 2021. For the three months ended September 30, 2023, Google query volume for these key search terms was down approximately 15% from the prior year.
The improvement in repeat bookings for the three and nine months ended September 30, 2023 as compared to the prior year period was driven by the increased pet parent base, as new pet parents have continued to join the platform, as well as product enhancements. As these users returned to the platform for repeat bookings, we saw an overall increase in repeat bookings compared to the prior year period.
Gross Booking Value
Gross booking value, or GBV, represents the dollar value of bookings on the Rover services marketplace during a period, prior to cancellations, and is inclusive of pet care provider earnings, service fees, add-ons, taxes, and alterations, and is exclusive of tips and Rover’s other ancillary revenue streams. We believe that GBV is a useful indicator of the level of spending on and growth of our platform. Growth in GBV represents increasing activity on our platform from repeat and new pet parents, as well as increased provider-set prices, and may differ slightly from bookings growth depending on the mix of daytime and overnight services for each period. While the number of bookings historically peaks during the third quarter, GBV historically tends to peak in the fourth quarter due to the higher average booking value, or ABV, associated with longer duration bookings.
Three Months Ended September 30,Nine Months Ended September 30,
20232022Y/Y growth20232022Y/Y growth
(in millions, except for percentages)
Gross Booking Value$266 $214 25 %$742 $580 28 %
The improvement in GBV for the three and nine months ended September 30, 2023 as compared to the prior year periods was driven by the respective 20% and 22% increase in total bookings, as well as higher ABVs as discussed below under “—Factors Affecting our Performance—Service Booking Mix.” Our international markets displayed strong growth, with total bookings up 45% and 50% in the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods. In the three and nine months ended September 30, 2023, international markets were 10% of GBV compared to 8% in the prior year periods.
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Factors Affecting Our Performance
We believe that our performance and future success depend on several factors that present significant opportunities, but also pose risks and challenges, including those discussed below. See also Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Part II, Item 1A of this report titled “Risk Factors.”
Growth of our Base of Pet Parents
Our objective is to attract new pet parents to our platform and to successfully convert them into repeat bookers, as new pet parent acquisition is an important driver of future revenue. During 2023 we have made and continue to make product enhancements to our platform to better assist pet parents in finding the best match for their needs. We believe these enhancements have improved new booking and repeat booking rates. These conversion rate improvements have benefited all channels from which we drive potential pet parents, including word-of-mouth, as well as from a variety of paid marketing channels such as paid search, social media, video, streaming and linear television, and other online and offline channels, including distribution partnerships. For example, starting in October 2022 we entered the employer-sponsored back-up care space through distribution partnerships with third parties. These partnerships provide employees who have employer-sponsored child care benefits the opportunity to use those benefits to book pet care services on Rover. We believe these partnerships have provided a positive incentive for both new and repeat bookings, and is an example of the type of distribution partnerships we have entered and may continue to pursue in the future.
Repeat Booking Activity
Our aim when we attract a new pet parent is to continue to generate bookings from that pet parent. As new pet parents return to the platform, we see an overall increase in repeat bookings. We define a repeat pet parent as any pet parent that has an incremental booking beyond their first. In the three months ended September 30, 2023, repeat bookings increased 23% from the prior year period to 1.5 million. In the nine months ended September 30, 2023, repeat bookings increased 25% from the prior year period to 4.2 million. In the three months ended September 30, 2023, repeat bookings as a percentage of total bookings was 84%, compared to 82% in the prior year period. In the nine months ended September 30, 2023, repeat bookings as a percentage of total bookings was 85%, compared to 83% in the prior year period. We believe this ratio highlights the potential of our existing pet parent base to return as the marketplace continues to scale. Overall, we believe this ratio will continue climbing towards the high 80% range.
We may see a change in the percentage of bookings from repeat pet parents over time. A change in our ability to attract new pet parents to our platform or changes in pet parent behavior could have a significant negative impact on our repeat bookings, GBV, revenue, net income (loss), Adjusted EBITDA, and operating results.
Investing in Growth
We have invested, and plan to continue investing, in new markets, new service offerings and product improvements. We believe that we can further expand services to new local markets within our existing geographies by carefully targeting locations with high expected demand. If we expand to new markets, we may invest more heavily in product development and marketing, with expectations of a slightly extended return on investment target period in order to accelerate growth in each new market. Our growth strategy includes evaluating acquisitions and investments that can accelerate our growth and operating leverage. The timing of acquisitions and related integration and investments will impact our financial results. In addition, we believe that expanding product and service offerings may help us to better provide value to pet parents, improve the ability to attract additional pet parents through additional marketing and advertising spend that increases brand awareness, and increase the engagement of existing pet parents.
Further, our product investments and improvements, such as simplifying the booking process and increasing the effectiveness of pet parent and pet care provider matches, and trust and safety investments have and are expected to continue to drive new and repeat bookings by improving conversion rates for new pet parents and improving platform attachment for repeat pet parents and pet care providers. For example, we’ve made enhancements to how pet care providers view bookings on their Rover calendar, launched the Sitter Insights Dashboard that provides information to pet care providers to help them assess how their business is doing, launched a beta version of our Star Sitter program in select markets that helps better identify pet care providers providing exemplary experiences, implemented recurring booking functionality in Europe to allow pet parents to easily schedule ongoing care for their pets, and implemented global app-based support messaging for both pet parents and pet care providers.
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Availability of Pet Care Providers
Our platform enables pet care providers to list on our marketplace with low startup costs, define the terms and delivery of their services, independently set the prices charged for their services, establish a bookings calendar, schedule and cancel their bookings, communicate and share photos with pet parents, and receive payment from pet parents.
Some pet care providers have sourced bookings through our platform and then completed the transaction off of our platform and may continue to do so or may increase the share of bookings that they take off our platform. We endeavor to reduce this activity through continual improvements to our platform and other offerings, such as the Rover Guarantee, that incentivize pet care providers and pet parents to transact through Rover. In addition, our matching algorithm is designed to identify signals of high quality care that are observable from platform transactions, such as repeat booking activity, and to increase the chance that pet care providers exhibiting such signals are featured to pet parents. We also have notifications in the platform that encourage pet care providers to book through the platform, and we identify and deactivate serial diverters from the platform. Despite these attributes, we cannot prevent off-platform transactions entirely.
As of September 30, 2023, we had over 426,000 addressable pet care providers available to book on our platform, up 34% from September 30, 2022. An addressable pet care provider is defined as a provider who, in the past six months, has joined the platform for the first time or has serviced at least one booking, and remains available for future bookings. Our ability to attract pet care providers to our platform, enable them to generate income and dissuade them from diverting bookings off our platform is an important factor in our ability to serve pet parents and, in turn, drive the bookings, GBV, revenue, net income (loss), Adjusted EBITDA, and operating results of our business.
Service Booking Mix
Pet care providers set the price for their services offered on our platform. Overnight services are generally set at a higher price point, although with lower frequency, than daytime services. Typically, the first booking on our platform has the highest ABV, as pet parents tend to start with us with a specific need in mind, such as a seven-day trip, that is beyond what they can ask of friends, family, or neighbors. Subsequent bookings tend to be for less total nights or walks as pet parents use our platform for shorter more frequent trips or start using daytime services.
As we see changes in the mix of overnight and daytime services, the number of nights or daytime services in an average booking, and the country of the services, the ABV will fluctuate. ABV is defined as GBV divided by total bookings for the relevant period. We have observed ABV increases since the second quarter of 2021 at the service level, likely resulting from pet care providers raising their prices in response to the rising rate of inflation in the markets we serve. We have seen the rate of ABV increases moderate starting in the second quarter of 2022. For the three months ended September 30, 2023, ABV was $147, up 4% from $142 in the prior year period, mostly driven by increased pricing set by pet care providers. For the nine months ended September 30, 2023, ABV was $148, up 5% from $141 in the prior year period, also mostly driven by increased pricing set by pet care providers. We have historically realized lower ABV from international bookings compared to those from the United States. As such, a continued increase in international bookings as a percentage of total bookings could further moderate or reduce our overall ABV growth.
During the second quarter of 2023, we began to shift all legacy pet parents in the United States to the 11% fee structure we implemented for new pet parents in 2021, the majority of whom were at the legacy 7% fee rates. This change was fully implemented in the three months ended September 30, 2023. We also recently implemented this change in Canada. While we believe this change has positively impacted ABV and the revenue generated from the Rover platform since its implementation, the changes could have a negative impact on pet parent demand and bookings. Overall, we expect ABV to grow modestly on a seasonal basis, although the trends and uncertainties addressed below and in “—Key Trends and Uncertainties” could adversely impact ABV growth trends.
We recognize GBV at the time the booking is made and recognize revenue at the time that the pet care service begins. We transfer fees earned by pet care providers upon completion of the service. In the case of overnight services, the average period between the booking and the commencement of service is impacted by seasonality, as pet parents tend to book farther in advance of expected travel dates in the summer and for the holidays.
In the three and nine months ended September 30, 2023, overnight services made up 43% of total bookings, and the remaining 57% resulted from daytime services, compared to 45% of total bookings from overnight services and 55% from daytime services in the prior year periods. Drop-in visits, which we categorize as daytime services, are sometimes substitutes for overnight care, especially with respect to cat care. In the three months ended September 30, 2023, drop-in services made up
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25% of total bookings, compared to 24% in the prior year period. In the nine months ended September 30, 2023, drop-in services made up 24% of total bookings, compared to 23% in the prior year period.
In the three months ended September 30, 2023, 68% of GBV was with overnight services, and the remaining 32% was with daytime services, compared to 69% of GBV with overnight services and 31% with daytime services in the prior year period. In the nine months ended September 30, 2023, 69% of GBV was with overnight services, and the remaining 31% was with daytime services, compared to 70% of GBV with overnight services and 30% with daytime services in the prior year period.
While increased pricing by pet care providers has helped drive increases in ABV, GBV and revenue, pet care providers could increase their prices on our platform to a point that causes pet parent demand and bookings to decline if such prices are deemed too high, which could adversely affect our business, operating results and financial condition.
Cancellation Rates
Bookings and GBV are recorded prior to any cancellation by a pet parent or pet care provider. Because revenue is recognized when a service starts, a change in cancellation rate does not impact recognized revenue but does impact revenue growth rates. However, marketing investments and some support costs are incurred ahead of GBV, and thus changes in marketing and support as a percentage of revenue are correlated to changes in cancellation rates.
We define cancellation rate as canceled bookings value divided by GBV for the relevant period. In 2019, prior to the onset of COVID-19, our cancellation rate was 9.3% of GBV, which increased to 20.5% of GBV in 2020, 14.1% of GBV in 2021 and 14.0% of GBV in 2022. In the three months ended September 30, 2023, our cancellation rate was 13.3% of GBV given the reduced levels of COVID-19, compared to 14.2% of GBV in the same prior year period when rates were elevated due to the BA.5 variant wave. In the nine months ended September 30, 2023, our cancellation rate was 12.6% of GBV, compared to 13.8% of GBV in the same prior year period. Given macroeconomic and health trend uncertainties, we currently expect cancellation rates in the fourth quarter of 2023 to be slightly elevated compared to the first nine months of the year, although lower than the 14.6% observed in the fourth quarter of 2022.
Key Trends and Uncertainties
As discussed in “Risk Factors—Risks Related to our Business and Industry—Any decline or disruption in the travel and pet care services industries or an economic downturn could materially adversely affect our business, results of operations, and financial condition,” we face macroeconomic and geopolitical trends that could lead to reduced travel and pet care services industry spending. To date, we believe these conditions have had a modest impact on our business, results of operations, cash flows, and financial condition. We have seen the growth rate of pet care provider price increases slow significantly through 2022 and the first nine months of 2023 and, as noted in “—Key Business Metrics—Bookings,” have observed significant year-over-year decreases in the Google query volume for key search terms that we track as correlated to demand from new pet parents. The full impact of these macroeconomic and geopolitical events and trends on our business, results of operations, cash flows, and financial condition remains uncertain, and will depend on future developments that we may not be able to accurately predict.
We maintain that pet care providers who use the Rover platform are our customers and, as such, are at most independent contractors. However, pet care providers may be reclassified as employees, especially in light of the evolving rules and restrictions on service provider classification and their potential impact on participants in the “gig economy.” A reclassification of pet care providers as employees and claims or settlements of proceedings alleging misclassification could adversely affect our business, financial condition and operating results. See “Risk Factors—Risks Related to Regulation and Taxation—If pet care providers are reclassified as employees under applicable law or new laws are passed causing the reclassification of pet care providers as employees or otherwise adopting employment-like restrictions with regard to pet care providers who use our platform, our business would be materially adversely affected” and Part I, Item 1, Note 9—Commitments and Contingencies—Litigation and Other Contingencies for a discussion of our settlement of a classification lawsuit in California, including the settlement payment made in September 2023.
See also “—Key Business Metrics” and “—Factors Affecting our Performance” above, “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of our foreign currency, investment and interest rate, and inflation risks, and “Risk Factors—Risks Related to our Business and Industry—The COVID-19 pandemic and the impact of actions to mitigate the COVID-19 pandemic have materially adversely impacted and may continue to materially adversely impact our business, operating results and financial condition” for a discussion of potential material lease impairment charges and increased costs that may be incurred as a result of changes to in-office and remote work requirements resulting from the COVID-19 pandemic.
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Components of Results of Operations
Revenue
We derive revenue principally from fees paid by pet care providers and pet parents for our facilitation and support services, net of credits, coupons and discounts, cancellations, refunds and sales tax paid on behalf of pet parents and pet care providers. We recognize revenue at the start of pet care services being provided under a booking. We also derive revenue from pet care provider onboarding fees in order to be listed on our platform.
Costs and Expenses
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, operations and support costs associated with onboarding new pet care providers, costs related to our contractual guarantee to reimburse pet parents or pet care providers for certain expenses arising from injuries or other damages incurred during a service booked through the Rover platform, subject to specified conditions, or the Rover Guarantee, and other direct and indirect costs arising as a result of transactions that take place on our platform.

We expect our cost of revenue (exclusive of depreciation and amortization shown separately) to vary from period-to-period on an absolute dollar basis, but remain relatively consistent as a percentage of revenue, excluding improvements in cancellation rate, take rate and cost efficiencies, when viewing exclusive of the impact of internal-use software amortization.
Operations and Support
Operations and support expenses include payroll, employee benefits, stock-based compensation and other personnel-related costs associated with our operations and support team, as well as third-party costs related to outsourced operations and 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 messaging to our pet parents and pet care providers. This support includes assisting and responding to pet parents’ and pet care providers’ inquiries regarding the general use of our platform or how to make or modify a booking through our platform. We allocate a portion of overhead costs, which includes lease expense, utilities and information technology expense to operations and support expense based on headcount.

We expect that operations and support expenses will increase on an absolute dollar basis for the foreseeable future to the extent that we continue to see growth on our platform. Although we will continue to make strategic investments in these areas to ensure we are providing the best service possible for our users, we expect these expenses to decrease as a percentage of revenue over the longer term due to better leverage in our operations and increased scale of our marketplace. For example, we completed the process of transitioning from two third-party service providers to a sole third-party service provider for customer support during the three months ended June 30, 2023, which resulted in cost savings that may be partially offset by higher wages for customer support.
Marketing
Marketing expenses include payroll, employee benefits, stock-based compensation expense and other personnel-related costs associated with our marketing team. These expenses also include advertising expense which consists of digital marketing, brand marketing, public relations, linear and streaming video, marketing partnerships and other promotions. Digital marketing
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primarily consists of targeted promotional campaigns through electronic channels, such as social media, search engine marketing, affiliate programs, display and video advertising, which are focused on pet parent acquisition.

While we intend to continue to increase our investment in marketing during the remainder of 2023, we expect marketing expense as a percentage of revenue to slightly decrease, relative to recent periods.
Product Development
Product development expenses include payroll, employee benefits, stock-based compensation expense and other personnel-related costs for employees in marketplace, data science, engineering, business analytics, and product management as well as the maintenance and support costs for technology infrastructure, primarily related to non-revenue generating systems.

In 2022, we increased headcount as we invested in our product and engineering efforts. In 2023, we expect that our product development expenses will increase on an absolute dollar basis and will vary from period-to-period as a percentage of revenue in the short term as we continue to invest in product development activities relating to ongoing improvements and maintenance of our technology platform. We expect these expenses to decrease as a percentage of revenue over the longer term due to better leverage in our product development.
The costs incurred in the preliminary stages of website and software development related to the platform are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, incremental, and deemed by management to be significant, are capitalized as internal-use software and amortized on a straight-line basis over their estimated useful lives. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over their estimated useful lives. Amortization expense related to capitalized internal-use software is included in cost of revenue (exclusive of depreciation and amortization shown separately).
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, legal settlements, as well as management, accounting, legal, corporate insurance and other expenses used to run the business.

In 2022, we increased headcount, professional services, insurance and software to support the growth of our business and our requirements as a newly public company. In 2023, we have incurred and expect to continue to incur additional general and administrative expenses to support operating as a public company and the overall expected growth in our business. While these expenses may vary from period-to-period as a percentage of revenue, we expect them to decrease as a percentage of revenue over the longer term.
Depreciation and Amortization
Depreciation and amortization expenses include depreciation of our property and equipment, leasehold improvements and amortization of our intangible assets. Amortization related to our internal-use software is included in cost of revenue (exclusive of depreciation and amortization shown separately).
Impairment Loss on Intangible Assets and Goodwill

Impairment loss on intangible assets and goodwill consists of our full write-down of intangible assets and goodwill for GoodPup, our virtual dog training platform. See Note 8—Goodwill and Intangible Assets to our condensed consolidated financial statements in Part I, Item 1 of this report for additional information.
Other Income (Expense), Net
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and short-term and long-term investments.
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Interest Expense
Interest expense consists primarily of interest on our secured letter of credit.
Change in Fair Value of Other Investments
Change in fair value of other investments consists of the fair value remeasurement of the convertible note receivable, which was converted to equity in the second quarter 2023, from our equity method investee. See Note 5—Investments, to our condensed consolidated financial statements included in Part I, Item 1 of this report for additional information.
Change in Fair Value of Derivative Warrant Liabilities
Change in fair value of derivative warrant liabilities consists of the change in fair value of our Class A common stock warrant liabilities. See Note 2—Summary of Significant Accounting Policies and Note 6—Fair Value, to our condensed consolidated financial statements included in Part I, Item 1 of this report for additional information.
Other Income (Expense), Net
Other income (expense), net consists primarily of realized and unrealized gains and losses on foreign currency transactions, realized gains and losses from the change in fair value of investments and financial instruments and sales of such investments, and an employee retention credit. See Note 7—Balance Sheet Components to our condensed consolidated financial statements included in Part I, Item 1 of this report for additional information on the employee retention credit.
(Provision for) Benefit From Income Taxes
We are subject to income taxes in the United States and several foreign jurisdictions. Foreign jurisdictions impose different statutory tax rates than in the United States. Accordingly, our effective tax rate varies based upon several factors, including our jurisdictional mix of income, changes in the valuation allowance on our U.S. deferred tax assets, the tax impacts related to acquisitions and investments, and changes in tax law.

We have recorded a valuation allowance against our U.S. deferred tax assets, including Federal and state net operating loss and credit carryforwards, and intend to maintain the valuation allowance until there is sufficient evidence to support its reversal. See “Risk Factors—Risks Related to Regulation and Taxation—We record, and may in the future record, significant valuation allowances on our deferred tax assets, and the recording and release of such allowances may have a material impact on our results of operations.
Loss from Equity Method Investments, Net of Tax
Loss from equity method investments, net of tax consists of our share of income or loss from our investment in an early-stage service for pet parents that is complementary to our current offerings.
Results of Operations
Given macroeconomic and other factors discussed above under “—Key Trends and Uncertainties,” financial performance for prior and current periods may not be indicative of future performance.
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The following tables set forth our results of operations for the periods presented:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(in thousands)
Revenue$66,203 $50,864 $165,852 $122,059 
Costs and expenses(1):
Cost of revenue (exclusive of depreciation and amortization shown separately below)13,634 11,607 37,022 29,976 
Operations and support8,156 7,425 22,985 19,265 
Marketing12,684 8,686 35,401 27,044 
Product development8,566 7,100 24,164 20,380 
General and administrative13,599 30,599 39,640 53,616 
Depreciation and amortization1,189 1,561 4,143 4,432 
Impairment loss on intangible assets and goodwill— — 6,916 — 
Total costs and expenses57,828 66,978 170,271 154,713 
Income (loss) from operations8,375 (16,114)(4,419)(32,654)
Other income (expense), net:
Interest income3,152 1,287 8,566 2,084 
Interest expense(15)(19)(51)(61)
Change in fair value of other investments— — 1,115 — 
Change in fair value of derivative warrant liabilities— — — 4,579 
Other (expense) income, net(568)(257)1,560 (1,045)
Total other income (expense), net2,569 1,011 11,190 5,557 
Income (loss) before income taxes and equity method investments10,944 (15,103)6,771 (27,097)
(Provision for) benefit from income taxes(128)(44)(199)172 
Loss from equity method investments, net of tax(316)(325)(981)(325)
Net income (loss)$10,500 $(15,472)$5,591 $(27,250)
__________________
(1)    Costs and expenses include stock-based compensation expense as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(in thousands)
Operations and support$586 $473 $1,557 $1,214 
Marketing307 302 834 858 
Product development1,588 1,293 4,291 4,157 
General and administrative3,512 2,813 9,754 7,796 
Total stock-based compensation expense$5,993 $4,881 $16,436 $14,025 
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The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented as a percentage of revenue:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Revenue100 %100 %100 %100 %
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)20 23 22 24 
Operations and support12 15 14 16 
Marketing19 17 22 22 
Product development13 14 15 17 
General and administrative21 60 24 44 
Depreciation and amortization2 3 2 4 
Impairment loss on intangible assets and goodwill— — 4 — 
Total costs and expenses87 132 103 127 
Income (loss) from operations13 (32)(3)(27)
Other income (expense), net:
Interest income5 3 5 2 
Interest expense— — — — 
Change in fair value of other investments— — 1 — 
Change in fair value of derivative warrant liabilities— — — 4 
Other (expense) income, net(1)(1)1 (1)
Total other income (expense), net4 2 7 5 
Income (loss) before income taxes and equity method investments17 (30)4 (22)
(Provision for) benefit from income taxes— — — — 
Loss from equity method investments, net of tax(1)— (1)— 
Net income (loss)16 %(30)%3 %(22)%
Revenue
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Revenue$66,203 $50,864 $15,339 30 %$165,852 $122,059 $43,793 36 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The increase in revenue was primarily due to a 20% increase in the number of bookings on our platform as a result of new pet parent growth and increased repeat bookings. The remainder of the increase was due to the continuation of a shift of all U.S. pet parents to an 11% fee structure, a 4% increase in ABV due to increased prices set by pet care providers, and a decrease in cancellation rates from 14.2% in the three months ended September 30, 2022 as compared to 13.3% in the three months ended September 30, 2023, and an increase in provider onboarding revenue driven by an increase in pet care providers joining the platform.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase in revenue was primarily due to a 22% increase in the number of bookings on our platform as a result of new pet parent growth and increased repeat bookings. The remainder of the increase was due to a 5% increase in ABV due to increased
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prices set by pet care providers, the shift of all U.S. pet parents to an 11% fee structure, an increase in provider onboarding revenue driven by an increase in pet care providers joining the platform, and a decrease in cancellation rates from 13.8% in the nine months ended September 30, 2022 as compared to 12.6% in the nine months ended September 30, 2023.
Cost of Revenue (Exclusive of Depreciation and Amortization Shown Separately)
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Cost of revenue (exclusive of depreciation and amortization shown separately below)$13,634 $11,607 $2,027 17 %$37,022 $29,976 $7,046 24 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The increase in cost of revenue (exclusive of depreciation and amortization shown separately) was primarily the result of a 30% increase in revenue and a $1.0 million increase in merchant fees. These increases were driven by an increase in demand as illustrated by the 25% increase in GBV and related platform activity, partially offset by changes to payment processor configurations implemented during the second quarter of 2023. Additionally, there was a $0.6 million increase in costs related to provider onboarding fees, a $0.4 million increase in customer claim costs related to the Rover Guarantee, and a $0.2 million increase in amortization of internally developed software. The 17% increase in cost of revenue (exclusive of depreciation and amortization shown separately) in a period where revenue increased 30% demonstrates our operating leverage, as certain costs, such as our server hosting costs, do not scale proportionally with our revenues.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase in cost of revenue (exclusive of depreciation and amortization shown separately) was primarily the result of a 36% increase in revenue and a $3.8 million increase in merchant fees. These increases were driven by an increase in demand for our platform as illustrated by the 28% increase in GBV and related platform activity, partially offset by changes to payment processor configurations implemented during the second quarter of 2023. Additionally, there was a $1.5 million increase in costs related to provider onboarding fees, a $0.7 million increase in customer claim costs related to the Rover Guarantee, a $0.4 million increase in trainer costs associated with GoodPup, our virtual dog training platform, a $0.3 million increase in amortization of internally developed software, and a $0.3 million increase in hosting and technology platform costs.
Operations and Support
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Operations and support$8,156 $7,425 $731 10 %$22,985 $19,265 $3,720 19 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The increase in operations and support expenses was primarily the result of a $0.5 million increase in personnel-related costs due to an increase in average salaries and other compensation expenses and a $0.4 million increase in customer service software costs. These increases were partially offset by a $0.2 million decrease in professional fees from reduced costs resulting from our transition to a sole operation and support provider for customer support during the second quarter of 2023.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase in operations and support expenses was the result of a $3.1 million increase in personnel-related costs due to an increase in average salaries and other compensation expenses combined with a 5% increase in average headcount, a $0.6 million increase in customer service software costs, and a $0.6 million increase in the allocation of overhead costs. These
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increases were partially offset by a $0.6 million decrease in professional fees from efficiency gains and reduced costs resulting from our transition to a sole operation and support provider for customer support during the second quarter of 2023.

Marketing
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Marketing$12,684 $8,686 $3,998 46 %$35,401 $27,044 $8,357 31 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The increase in marketing expenses was primarily the result of a $3.4 million increase in advertising spend as we normalized our marketing investment from our more conservative spending during the pandemic, a $0.3 million increase in personnel costs due to an increase in average salaries and other compensation expenses combined with a 10% increase in headcount, and a $0.2 million increase in professional fees due to outsourced marketing costs. Marketing expense, as a percentage of revenue, was 19% in the three months ended September 30, 2023, as compared to 17% in the three months ended September 30, 2022.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase in marketing expenses was primarily the result of a $6.9 million increase in advertising spend as we normalized our marketing investment from our more conservative spending during the pandemic, a $0.8 million increase in personnel costs due to an increase in average salaries and other compensation expenses combined with a 6% increase in average headcount, and a $0.5 million increase in professional fees due to outsourced marketing costs. Marketing expense, as a percentage of revenue, was 22% in the nine months ended September 30, 2023, as compared to 22% in the nine months ended September 30, 2022.
Product Development
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Product development$8,566 $7,100 $1,466 21 %$24,164 $20,380 $3,784 19 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The increase in product development expenses was primarily due to a $1.3 million increase in personnel-related costs and other compensation expenses due to to a 22% increase in headcount related to new product investments, and a $0.2 million increase in the allocation of overhead costs.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase in product development expenses was primarily due to a $3.7 million increase in personnel-related costs and other compensation expenses due to an increase in average salaries combined with a 17% increase in average headcount, a $0.4 million net increase in third-party costs related to outsourced professionals due to an increase in engineering outsourcing, and a $0.4 million increase in the allocation of overhead costs, partially offset by $1.0 million in higher capitalized software development costs driven by higher personnel-related costs including stock-based compensation expense associated with internally developed software.

General and Administrative
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Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
General and administrative$13,599 $30,599 $(17,000)(56)%$39,640 $53,616 $(13,976)(26)%
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The decrease in general and administrative expenses was due to a $17.0 million net decrease in litigation expense primarily related to a $18.0 million total legal settlement during the three months ended September 30, 2022 (see Note 9—Commitments and Contingencies—Litigation and Other Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this report), a $0.8 million decrease in bonus costs, a $0.4 million decrease of insurance expense as we mature as a public company and secure more favorable insurance rates, and a $0.3 million decrease in the allocation of overhead costs. These decreases were partially offset by a $1.1 million increase in personnel-related costs and other compensation expenses due to an increase in average salaries combined with a 6% increase in headcount.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The decrease in general and administrative expenses was due to a $17.6 million net decrease in litigation expense primarily related to a $18.0 million total legal settlement during the three months ended September 30, 2022 (see Note 9—Commitments and Contingencies—Litigation and Other Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this report), a $1.2 million decrease of insurance expense as we mature as a public company and secure more favorable insurance rates, and a $0.9 million decrease in the allocation of overhead costs. These decreases were partially offset by a $2.0 million increase in personnel-related costs due to an increase in average salaries and other compensation expenses, as well as a $2.0 million increase in stock-based compensation expense related to a 8% increase in average headcount as we support the expected growth in our business, a $0.8 million increase in software costs due to an increase in SaaS subscriptions as the company enhances its public company compliance activities, and a $0.6 million increase as a result of new coworking lease agreements for office space in Barcelona and San Antonio.

Depreciation and Amortization
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Depreciation and amortization$1,189 $1,561 $(372)(24)%$4,143 $4,432 $(289)(7)%
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The decrease in depreciation and amortization was driven by a $0.3 million decrease in amortization of intangible assets of GoodPup, our virtual dog training platform, as a result of a full write-down of intangible assets and goodwill for the quarter ended June 30, 2023.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022

The decrease in depreciation and amortization was driven by a $0.5 million decrease in amortization as a result of certain intangible assets related to the DogVacay and Barking Dog Ventures acquisitions reaching the end of their useful lives. This decrease was partially offset by a $0.3 million increase in amortization of intangible assets of GoodPup, our virtual dog training platform, which began amortizing in the quarter ended September 30, 2022 and had a full write-down of intangible assets and goodwill for the quarter ended June 30, 2023.
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Impairment Loss on Intangible Assets and Goodwill
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Impairment loss on intangible assets and goodwill$— $— $— — %$6,916 $— $6,916 — %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

There were no impairment losses on intangible assets and goodwill in the three months ended September 30, 2023 and 2022.

Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
Impairment loss on intangible assets and goodwill increased as the result of a full write-down of intangible assets and goodwill for GoodPup, our virtual dog training platform, during the three months ended June 30, 2023. There was no impairment loss on intangible assets and goodwill in the nine months ended September 30, 2022.

Interest Income
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Interest income$3,152 $1,287 $1,865 145 %$8,566 $2,084 $6,482 311 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

Despite decreasing investment balances, the increase in interest income was driven by increasing interest rates from 2022 through the third quarter 2023.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
Despite decreasing investment balances, the increase in interest income was driven by increasing interest rates from 2022 through the third quarter 2023.

Change in Fair Value of Other Investments
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Change in fair value of other investments$— $— $— — %$1,115 $— $1,115 — %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

There was no change in the fair value of other investments in the three months ended September 30, 2023 and 2022.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022

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We recognized a gain on the change in fair value of other investments due to the fair value remeasurement of the convertible notes receivable from our equity method investee. As of June 30, 2023, the convertible notes were converted to equity and were no longer outstanding. We do not anticipate a future fair value adjustment unless we make an additional investment in the investee. There were no additional investments made during the three months ended September 30, 2023.

Change in Fair Value of Derivative Warrant Liabilities
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Change in fair value of derivative warrant liabilities$— $— $— — %$— $4,579 $(4,579)(100)%
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

Change in fair value of derivative warrant liabilities did not change over the three months ended September 30, 2023 and 2022. As of March 31, 2022, the warrants were no longer outstanding so we no longer have to account for the warrants as a liability or report any charge for the change in fair value after the first quarter 2022.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
In the first quarter of 2022, we recognized a $4.6 million gain due to the change in the fair value of our warrants driven by the decrease in fair value of our common stock during the period the warrants were outstanding. See Note 6—Fair Value to our condensed consolidated financial statements included in Part I, Item 1 of this report for additional information. As of March 31, 2022, the warrants were no longer outstanding so we no longer have to account for the warrants as a liability or report any charge for the change in fair value after the first quarter 2022.
Other Income (Expense), Net
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Other (expense) income, net$(568)$(257)$(311)121 %$1,560 $(1,045)$2,605 (249)%
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The decrease in other income (expense), net was primarily driven by a $0.5 million unrealized loss from an increase in foreign currency deposits held at our payment processor and the strengthening of the U.S. dollar against other global currencies, as compared to a $0.2 million unrealized loss in the third quarter of 2022.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase in other income (expense), net was primarily driven by a $1.9 million employee retention credit recorded during the second quarter of 2023 (see Note 7—Balance Sheet Components to our condensed consolidated financial statements included in Part I, Item 1 of this report) and a $0.2 million unrealized loss from an increase in foreign currency deposits held at our payment processor and the weakening of the U.S. dollar against other global currencies, as compared to a $1.0 million unrealized loss in the third quarter of 2022.

We have applied for an additional employee retention credit of $1.4 million, which if approved would result in receipt of additional credits in the future. In September 2023, the U.S. Internal Revenue Service announced that payouts for claims submitted before September 14, 2023 are being processed at a slower pace due to more detailed compliance reviews.

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(Provision for) Benefit from Income Taxes
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
(Provision for) benefit from income taxes$(128)$(44)$(84)191 %$(199)$172 $(371)(216)%
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

The provision for income taxes increased in the third quarter of 2023, compared to the same period in 2022, primarily due to $10.9 million in pre-tax earnings in the third quarter of 2023 compared to a $15.1 million pre-tax loss in the same period of 2022.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022

The provision for income taxes increased during the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to $6.8 million in pre-tax earnings for the nine months ended September 30, 2023 compared to a $27.1 million pre-tax loss in the same period of 2022, coupled with the impact of the $0.3 million U.S. deferred tax benefit related to the GoodPup acquisition recorded in the second quarter of 2022.
Loss from Equity Method Investments, Net of Tax
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20232022Amount%20232022Amount%
(in thousands, except for percentages)
Loss from equity method investments, net of tax$(316)$(325)$9 (3)%$(981)$(325)$(656)202 %
Three Months Ended September 30, 2023 Compared with the Same Period in 2022

Loss from equity method investments, net of tax remained flat over the three months ended September 30, 2023 and 2022.
Nine Months Ended September 30, 2023 Compared with the Same Period in 2022
The increase was driven by a $0.7 million loss related to our proportionate share of net losses in our equity method investment, as discussed in Note 5—Investments to our condensed consolidated financial statements included in Part I, Item 1 of this report.

Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, we use non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, Contribution, Contribution margin, and non-GAAP operating expenses (collectively, the “Non-GAAP Financial Measures”), each as defined below. A reconciliation of the historical Non-GAAP Financial Measures to their most directly comparable historical GAAP financial measures is presented in tabular form below. The Non-GAAP Financial Measures are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. The Non-GAAP Financial Measures have limitations as an analytical tool, which limitations are described below, and you should not consider them in isolation, or as a substitute for, GAAP financial measures.
We use 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, including those related to operating expenses, as a means to evaluate period-to-period comparisons, and determine incentive compensation. 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.
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We believe that these Non-GAAP Financial Measures, when taken together with their corresponding comparable GAAP financial measure, provide meaningful supplemental information to investors as they provide a basis for period-to-period comparisons of our business by excluding the effect of certain non-cash and cash gains, expenses, losses and variable charges that may not be indicative of our recurring core business, results of operations, or outlook. We believe these Non-GAAP Financial Measures are useful to investors because they (1) allow for greater transparency with respect to key metrics used by management in its financial, operational and strategic decision-making and in assessing the health of our business and operating performance, (2) are used by our institutional investors and the analyst community to help them analyze the health of our business, (3) allow investors and others to understand and evaluate our operating results in the same manner as our management and board of directors, and (4) provide a reasonable basis for comparing our ongoing results of operations and those of other companies.
Examples of the limitations of the Non-GAAP Financial Measures include:
•Adjusted EBITDA excludes certain recurring, non-cash charges, such as depreciation of property and equipment and amortization of intangible assets including amortization related to capitalized internal use software. Although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA excludes certain restructuring and acquisition and merger-related charges, some or all of which may be settled in cash;
•Adjusted EBITDA and non-GAAP operating expenses exclude stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring non-cash expense in our business as we grow as a company and an important part of our compensation strategy;
•Adjusted EBITDA does not reflect the components of other income (expense), net, which consists primarily of realized and unrealized gains and losses on foreign currency transactions, realized gains and losses from the change in fair value of investments and financial instruments and sales of such investments, and for the nine months ended September 30, 2023 a $1.9 million employee retention credit;
•Adjusted EBITDA does not reflect period-to-period changes in taxes, income tax expense or the cash necessary to pay income taxes;
•Adjusted EBITDA and non-GAAP general and administrative expense exclude certain legal settlements that may reduce cash available to us;
•Adjusted EBITDA does not consider the impact of goodwill and intangible asset impairments;
•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 financial measures, if any, reported by our peer companies, or those 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.
To compensate for these limitations, management presents the Non-GAAP Financial Measures in conjunction with GAAP results. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view the Non-GAAP Financial Measures in conjunction with their respective related GAAP financial measures. 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 earnings releases and filings with the SEC.
The Non-GAAP Financial Measures are not indicative of our overall results, an indicator of past or future financial performance, a financial measure of total company profitability, and are not intended to be used as a proxy for total company profitability nor imply profitability for our business. 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 and Adjusted EBITDA Margin
We define Adjusted EBITDA as net income (loss) excluding depreciation and amortization (including amortization expense related to capitalized internal use software), stock-based compensation expense, interest expense, interest income, change in fair
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value, net, other income (expense), net, income tax expense or benefit, certain acquisition and merger-related costs, gain or loss from equity method investments, net of tax, and non-routine items such as goodwill and intangible asset or investment impairment (if any), restructuring costs (if any), transaction-related expenses (if any), and certain legal settlements (if any). Certain legal settlements refers to settlements or other accruals arising from any significant legal proceedings related to worker classification matters. These matters have limited precedent, cover extended historical periods and are unpredictable in both magnitude and timing and are therefore distinct from normal, recurring legal matters and related expenses incurred in our ongoing operating performance. Adjusted EBITDA margin as presented in the reconciliation table below is Adjusted EBITDA for a period divided by revenue for the same period.
Beginning with the three months ended June 30, 2023, Rover redefined Adjusted EBITDA to omit the impact of a $6.9 million impairment loss on intangible assets and goodwill and to reflect the impact of a $1.9 million employee retention credit that was recorded within other income (expense), net on the condensed consolidated statements of operations for the three months ended June 30, 2023 and the nine months ended September 30, 2023. Rover did not have any impairment loss on intangible assets and goodwill or record any employee retention credit during the nine months ended September 30, 2022. Rover believes the adjustments described above are not indicative of its core operating performance and are useful to investors by enabling them to better assess its operating performance in the context of current period results and provide for better comparability with its historically disclosed Adjusted EBITDA amounts.
The following table presents a reconciliation of Adjusted EBITDA from net loss for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands, except for percentages)
Revenue$66,203 $50,864 $165,852 $122,059 
Adjusted EBITDA reconciliation:
Net income (loss)$10,500 $(15,472)$5,591 $(27,250)
Add (deduct):
Depreciation and amortization (1)
3,116 3,309 9,642 9,634 
Stock-based compensation expense (2)
5,993 4,881 16,436 14,025 
Interest expense15 19 51 61 
Interest income(3,152)(1,287)(8,566)(2,084)
Change in fair value, net (3)
— — (1,115)(4,579)
Other income (expense), net568 257 (1,560)1,045 
(Provision for) benefit from income taxes128 44 199 (172)
Loss from equity method investments, net of tax (4)
316 325 981 325 
Acquisition and merger-related costs (5)
— 168 — 658 
Legal settlements (6)
— 18,000 — 18,000 
Impairment loss on intangible assets and goodwill (7)
— — 6,916 — 
Adjusted EBITDA$17,484 $10,244 $28,575 $9,663 
Net income (loss) margin (8)
16 %(30)%3 %(22)%
Adjusted EBITDA margin (9)
26 %20 %17 %8 %
__________________
(1)Depreciation and amortization includes amortization expense related to capitalized internal use software, which is recognized as cost of revenue (exclusive of depreciation and amortization shown separately) in the condensed consolidated statements of operations.
(2)Stock-based compensation expense includes equity granted to employees as well as non-employee directors.
(3)Change in fair value, net includes the mark-to-market adjustments related to the Warrant liabilities in connection with the deSPAC transaction and the change in fair value of an equity method investment.
(4)The loss from equity method investments for the periods presented do not include income taxes as the equity method investee has not yet incurred any such taxes.
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(5)Acquisition and merger-related costs includes accounting, legal, consulting and travel-related expenses incurred in connection with the Caravel merger and other business combinations.
(6)Legal settlements includes the amount we accrued for a binding settlement term sheet executed in October 2022 related to worker classification claims.
(7)Impairment loss on intangible assets and goodwill includes the full write-off of intangible assets and goodwill related to GoodPup. See Part I, Item 1, Note 8—Goodwill and Intangible Assets for more information.
(8)Net income (loss) margin is net income (loss) for a period divided by revenue for the same period.
(9)Adjusted EBITDA margin is Adjusted EBITDA for a period divided by revenue for the same period.
Contribution and Contribution Margin
We define Contribution as gross profit (loss) plus amortization of intangible assets and amortization of internally developed software included in cost of revenue (exclusive of depreciation and amortization shown separately). Gross profit (loss) is defined as revenue less cost of revenue (exclusive of depreciation and amortization shown separately) and amortization of intangible assets. Gross profit margin is calculated by dividing gross profit (loss) for a period by revenue for the same period. Contribution margin is calculated by dividing Contribution for a period by revenue for the same period.
The following table presents a reconciliation of Contribution from gross profit for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
(in thousands, except for percentages)
Revenue$66,203 $50,864 $165,852 $122,059 
Less: Cost of revenue (exclusive of depreciation and amortization shown separately)(13,634)(11,607)(37,022)(29,976)
Less: Amortization of intangible assets(203)(524)(1,193)(1,463)
Gross profit52,366 38,733 127,637 90,620 
Gross profit margin79 %76 %77 %74 %
Add: Amortization of intangible assets203 524 1,193 1,463 
Add: Internally developed software amortization included in Cost of revenue (exclusive of depreciation and amortization shown separately)1,928 1,749 5,499 5,202 
Non-GAAP Contribution$54,497 $41,006 $134,329 $97,285 
Non-GAAP Contribution margin82 %81 %81 %80 %
Non-GAAP Operating Expenses
GAAP operating expenses consist of operations and support expense, marketing expense, product and development expense, and general and administrative expense. We define Non-GAAP operating expenses as GAAP operating expenses excluding the non-cash expenses arising from the grant of stock-based awards, and in the case of non-GAAP general and administrative expense, excluding certain legal settlements (if any). Certain legal settlements refers to settlements or other accruals arising from any significant legal proceedings related to worker classification matters. These matters have limited precedent, cover extended historical periods and are unpredictable in both magnitude and timing and are therefore distinct from normal, recurring legal matters and related expenses incurred in our ongoing operating performance. 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.
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The following table presents a reconciliation of Non-GAAP operating expenses from GAAP operating expenses for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,
20232022
Amount%Amount%
(in thousands, except for percentages)
Revenue$66,203 100 %$50,864 100 %
Operations and support expense$8,156 12 %$7,425 15 %
Less: Stock-based compensation expense(586)(1)(473)(1)
Non-GAAP Operations and support expense$7,570 11 %$6,952 14 %
Marketing expense$12,684 19 %$8,686 17 %
Less: Stock-based compensation expense(307)— (302)(1)
Non-GAAP Marketing expense$12,377 19 %$8,384 16 %
Product development expense$8,566 13 %$7,100 14 %
Less: Stock-based compensation expense(1,588)(2)(1,293)(3)
Non-GAAP Product development expense $6,978 11 %$5,807 11 %
General and administrative expense$13,599 21 %$30,599 60 %
Less: Stock-based compensation expense(3,512)(6)(2,813)(6)
Less: Legal settlements— — (18,000)(35)
Non-GAAP General and administrative expense$10,087 15 %$9,786 19 %
Nine Months Ended September 30,
20232022
Amount%Amount%
(in thousands, except for percentages)
Revenue$165,852 100 %$122,059 100 %
Operations and support expense$22,985 14 %$19,265 16 %
Less: Stock-based compensation expense(1,557)(1)(1,214)(1)
Non-GAAP Operations and support expense$21,428 13 %$18,051 15 %
Marketing expense$35,401 22 %$27,044 22 %
Less: Stock-based compensation expense(834)(1)(858)(1)
Non-GAAP Marketing expense$34,567 21 %$26,186 21 %
Product development expense$24,164 15 %$20,380 17 %
Less: Stock-based compensation expense(4,291)(3)(4,157)(4)
Non-GAAP Product development expense $19,873 12 %$16,223 13 %
General and administrative expense$39,640 24 %$53,616 44 %
Less: Stock-based compensation expense(9,754)(6)(7,796)(6)
Less: Legal settlements— — (18,000)(15)
Non-GAAP General and administrative expense$29,886 18 %$27,820 23 %
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Liquidity and Capital Resources

Sources of Liquidity
Our principal sources of liquidity are our cash and cash equivalents and investments. As of September 30, 2023, we had $129.1 million of cash and cash equivalents, $74.8 million in short-term investments, and $26.9 million in long-term investments. Additionally, these amounts do not include funds of $73.9 million held by our payment processor that we record separately on our balance sheet in accounts receivable. Cash and cash equivalents consist of operating cash on deposit with financial institutions and money market fund and commercial paper investments. To increase the returns on our cash and cash equivalents, we have opened investment accounts with financial institutions for investments such as fixed income securities, which may include U.S. government agency securities, municipal securities, treasury bills and certificates of deposit, commercial paper, asset-backed securities, and investment-grade corporate debt securities. The shift in the balances of our cash and cash equivalents and short-term and long-term investments as of September 30, 2023 as compared to December 31, 2022 was primarily driven by an increased number of investments maturing and our investment in a higher mix of money market holdings. We expect to continue making decisions regarding our cash and investment balances consistent with our investment policy and strategy.
Since inception, we have incurred annual operating losses but generated positive annual operating cash flows for the years ended December 31, 2022 and 2021. We have financed our operations through the sale of equity securities, proceeds from the Merger, short-term and long-term investments, and cash and cash equivalents. For the nine months ended September 30, 2023, we incurred operating losses of $4.4 million but generated positive operating cash flows of $9.1 million. As we continue to invest in growing our business and service offerings, we may experience additional operating losses in the future and operating cash flows could fluctuate from positive to negative from quarter to quarter or year to year. As a result, we may require additional capital resources.
Based upon our current operating plans, we believe that our cash and cash equivalents and investments, combined with any cash flows from operations, will be sufficient to fund our operations and cash commitments discussed below through at least the next 12 months 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 revenue and the impact of macroeconomic and geopolitical conditions, COVID-19 and other illnesses, and other factors described elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.”
We will continually evaluate opportunities to enhance our long-term liquidity for any long-term funding not provided by operating cash flows, cash and cash equivalents and investments, 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 and investments in new service offerings and adjacent opportunities, as well as investments in marketing and advertising and personnel to support our growth and public company status.

Our material cash requirements from known contractual and other obligations as of September 30, 2023 primarily relate to lease obligations. See Note 9—Commitments and Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this report for a discussion of our lease obligations, other commitments, and our secured and unsecured letters of credit. Additionally, we have non-cancelable commitments for network and cloud services, and other items in the ordinary course of business. As of September 30, 2023, we had approximately $8.5 million in material non-cancelable commitments, with varying expiration terms through December 31, 2027. These amounts are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated reduced by amounts paid through the current period end. These non-cancelable commitments are not considered unconditional purchase obligations and, therefore, are not disclosed
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within Note 9—Commitments and Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this report.
We remit cash to relevant taxing authorities to satisfy obligations in respect to income taxes and social security contributions related to employee RSU vesting. Through 2022, we funded these obligations through “sell-to-cover” transactions, whereby shares with a market value equivalent to the obligation were sold on behalf of the employee into the market. Beginning in 2023, we adopted a policy to use our cash to satisfy these obligations and withhold shares with a corresponding value from employees. For the three and nine months ended September 30, 2023, we have spent an aggregate of approximately $2.7 million and $5.5 million, respectively, for these tax payments related to the withholding of shares. See Note 11—Stock-Based Compensation for the number of withheld shares. We anticipate that for as long as we decide to use cash for this purpose instead of “sell-to-cover,” which decision may change in the future, we will spend significant funds to satisfy tax withholding and remittance obligations when we settle employee RSUs. These amounts will depend on the number of RSUs vesting, which are expected to increase due to annual refresh and new hire grants, and the stock price on future vesting dates.
On February 27, 2023, we announced that our board of directors approved a 12-month share repurchase program with authorization to purchase up to $50.0 million (exclusive of brokers’ commissions and expenses) of our Class A Common Stock, or the Share Repurchase Program. On November 6, 2023, we announced that our board of directors approved an extension of the Share Repurchase Program to run through February 28, 2025 and an increase to the total authorized amount under the program of up to $100 million resulting in a total authorized amount of up to $150.0 million (exclusive of brokers’ commissions and expenses) of our Class A Common Stock, including the $49.0 million repurchased through November 1, 2023. Repurchases under the Share Repurchase Program may be made on a discretionary basis from time to time through open market transactions (including through Rule 10b5-1 trading plans) or through privately negotiated transactions, subject to market conditions and applicable securities laws and other legal requirements, including the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Share Repurchase Program does not obligate us to acquire any specific number of shares of our Class A Common Stock. The timing, volume, purchase price and nature of repurchases will be determined by our management and depend on a variety of factors, including stock price, trading volume, market and economic conditions, other general business considerations such as alternative investment opportunities, applicable legal requirements and tax laws, and other relevant factors. Repurchases under the program have been authorized through February 28, 2025, but the program may be modified, suspended, or terminated at any time at the discretion of our board of directors. The Inflation Reduction Act of 2022 introduced a 1% excise tax on share repurchases, which increases the costs associated with our Share Repurchase Program. Through November 1, 2023, we have repurchased approximately 9.1 million shares for an aggregate amount of approximately $49.0 million, excluding brokers’ commissions and excise tax. Excise tax accrued was $0.1 million and $0.2 million for the three and nine months ended September 30, 2023, respectively. We expect to fund the repurchases with existing cash and cash equivalents and investments.
We anticipate long-term cash uses may also include strategic acquisitions or investments.
As discussed in Part I, Item 1, Note 9—Commitments and Contingencies, on September 1, 2023, we paid from cash and cash equivalents the remaining $17.9 million total settlement payment in the case captioned Melanie Sportsman v. A Place for Rover, Inc. in full and final settlement of all claims that the named plaintiff and members of a settlement class are bringing or could bring in the litigation.
Cash Flows
The following table summarizes our cash flows for the periods indicated.
Nine Months Ended
September 30,
20232022
(in thousands)
Net cash provided by (used in):
Operating activities$9,072 $(5,838)
Investing activities107,555 (210,112)
Financing activities(42,680)2,741 
Effect of foreign exchange on cash and cash equivalents(5)(177)
Net increase (decrease) in cash, cash equivalents and restricted cash$73,942 $(213,386)
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Operating Activities

The $14.9 million increase in net cash provided by (used in) operating activities for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily attributable to a $32.8 million increase in net income, a $6.9 million increase in impairment loss on intangible assets and goodwill, a $4.6 million reduction in change in fair value of derivative warrant liabilities, a $2.4 million increase in stock-based compensation expense, and a $0.7 million increase in loss from equity method investments, offset by a $28.9 million reduction in working capital, a $2.4 million increase in net accretion of investment discounts, and a $1.1 million decrease in change in fair value of other investments.

For the nine months ended September 30, 2023, the most significant non-cash component of our net cash provided by operations were non-cash inflows related to stock-based compensation of $16.4 million, depreciation and amortization of $9.6 million, impairment loss on intangible assets and goodwill related to GoodPup of $6.9 million, non-cash operating lease costs of $1.7 million, and a $1.0 million loss from equity method investments, partially offset by non-cash outflows of $2.9 million related to net accretion of investment discounts and $1.1 million related to the change in fair value of other investments. Additionally, net income of $5.6 million was offset by a cash outflow of $28.2 million attributable to changes in operating assets and liabilities. The $28.2 million was a result of a $23.3 million outflow in accounts receivable primarily due to the timing of funds received from our payment processor, a $17.0 million outflow in accrued expenses and other current liabilities primarily due to the payment of legal settlements, a $2.4 million outflow in operating lease liabilities, and a $1.0 million outflow in prepaid expenses and other current assets. These were partially offset by a net inflow of $15.8 million in deferred revenue, pet parent deposits, and pet care provider liabilities due to increased payments received from pet parents in advance of revenue recognition. The remaining $0.5 million change within changes in operating assets and liabilities was across the remaining line items.
Net cash used in operating activities was $5.8 million for the nine months ended September 30, 2022. The most significant non-cash components of our cash provided by operations was stock-based compensation of $14.0 million, depreciation and amortization of $9.6 million, $2.1 million of non-cash operating lease costs, partially offset by a net loss of $27.3 million which included a non-cash gain related to the change in fair value of derivative warrant liabilities of $4.6 million. These non-cash amounts were offset by a cash inflow of $0.7 million attributable to changes in operating assets and liabilities. The cash inflow of $0.7 million was a result of an inflow of $9.7 million in deferred revenue, pet parent deposits, and pet care provider liabilities due to increased payments received from pet parents in advance of revenue recognition and an inflow of $17.8 million in accrued expenses and other current liabilities primarily due to an $18.0 million accrual for a binding settlement term sheet. These inflows were partially offset by a $23.5 million outflow in accounts receivable due to the timing of funds received from our payment processer and a $2.4 million outflow in operating lease liabilities. The remaining $1.0 million change within changes in operating assets and liabilities was across the remaining line items.
Investing Activities
The $317.7 million increase in net cash provided by (used in) investing activities for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily driven by increased maturities and proceeds from sales of available-for-sale securities, the acquisition of GoodPup in the second quarter 2022, and decreased purchases of available-for-sale securities, partially offset by the purchase of equity securities in related parties during the nine months ended September 30, 2023, as compared to the same period in 2022.

Net cash provided by investing activities for the nine months ended September 30, 2023 was $107.6 million, which was primarily driven by $170.2 million of proceeds from maturities of available-for-sale securities and $57.8 million of proceeds from sales of available-for-sale securities. This was offset by purchases of available-for-sale securities of $112.0 million, an investment in internal-use software of $6.3 million associated with new product development and technology enhancements, and a $1.5 million investment for equity securities in related parties.
Net cash used in investing activities for the nine months ended September 30, 2022 was $210.1 million, which was primarily driven by our purchase of available-for-sale securities of $252.3 million, an investment of $5.7 million related to a business acquisition, an investment in internal-use software of $5.8 million associated with new product development and technology enhancements, an investment of $1.3 million in the form of convertible notes to invest in an early-stage service for pet parents that is complementary to our current offerings, and the purchase of property and equipment of $0.4 million for computers and peripheral equipment to support the 58% increase in average total headcount as compared to the third quarter of 2021. This was partially offset by $55.4 million of maturities of available-for-sale securities.
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Financing Activities

The $45.4 million decrease in net cash (used in) provided by financing activities for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily driven by repurchases of common stock under our Share Repurchase Program, higher taxes paid to satisfy tax obligations associated with the vesting of employee RSUs, and fewer proceeds received from the exercise of stock options.
Net cash used in financing activities for the nine months ended September 30, 2023 was $42.7 million, which was primarily driven by $40.1 million for repurchases of common stock as part of our Share Repurchase Program and $6.5 million primarily related to employee tax payments for the settlement of equity awards. This was offset by $3.9 million of proceeds received from the exercise of stock options.
Net cash provided by financing activities for the nine months ended September 30, 2022 was $2.7 million, which was primarily driven by $5.0 million of proceeds from the exercise of stock options partially offset by $2.2 million of tax payments related to the settlement of equity awards.
Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which 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.
Goodwill and Intangible Asset Impairment
During the quarter ended June 30, 2023, management identified various qualitative factors such as adverse macroeconomic conditions and related headwinds on the GoodPup business performance that collectively indicated it is more likely than not that goodwill and intangible assets of the GoodPup reporting unit and asset group fair values were less than their carrying amounts as of June 30, 2023. We had previously determined that GoodPup’s reporting unit and the asset group for assessing impairment of long-lived assets are the same. As a result, we performed an interim quantitative impairment assessment for goodwill in accordance with ASC 350 and intangible assets in accordance with ASC 360. The June 30, 2023 quantitative impairment tests indicated a decline in the fair value of the GoodPup reporting unit and asset group, resulting in a non-cash impairment charge of $6.9 million to write off goodwill and intangible assets in full. Impairment charges are included in impairment loss on intangible assets and goodwill in the condensed consolidated statements of operations.
Our remaining goodwill and intangible asset balance as of September 30, 2023 relates to our prior acquisitions within the Rover reporting unit, for which we concluded it was not more likely than not that fair values were less than carrying amounts at September 30, 2023.
We estimate the fair value of an asset group using the income approach. Such fair value measurements are based predominately on Level 3 inputs. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of these factors used in assessing fair value are outside the control of management and these assumptions and estimates may change in future periods.

Except as described above, there have been no material changes in our critical accounting policies and estimates from those disclosed in our Form 10-K for the fiscal year ended December 31, 2022. For a discussion of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2022.
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Recent Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies to our condensed consolidated financial statements included in Part I, Item 1 of this report 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.
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 have elected not to use this extended transition period.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to various market risks in the ordinary course of our business. These risks primarily include interest rate risk, investment risk, foreign currency translation and transaction risk, and inflation risk as discussed below.
Investment and Interest Rate Risk
We are exposed to interest rate risk related primarily to our investment portfolio. Changes in interest rates affect the interest earned on our total cash, cash equivalents, and marketable securities and the fair value of those securities.
Our investment portfolio consists of short-term and long-term fixed income securities, including commercial paper, U.S. government and investment-grade corporate debt securities, asset-backed securities, agency bonds, money market funds, and certificates of deposit. These securities are classified as available-for-sale and, consequently, are recorded in the condensed 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). The fair market values of our fixed rate securities may be adversely affected due to a rise in interest rates, and we have and may again suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. Although we classify our investment portfolio securities as available-for-sale, we have the ability to hold them until a market price recovery or maturity. The average contractual maturity of our available-for-sale investments is approximately eleven months as of September 30, 2023.
Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements without significantly increasing risk. We do not enter into investments for trading or speculative purposes.
Our investments are exposed to market risk due to the fluctuation of prevailing interest rates that may reduce the yield on our investments or their fair value. Based on our investment portfolio balance as of September 30, 2023, a hypothetical 100 basis point change in interest rates would not have materially affected our condensed consolidated financial statements due to the predominately short-term nature of our investment portfolio. We currently do not hedge these interest rate exposures.
We are exposed to certain risks related to the carrying amounts of an investment in a privately-held company compared to its fair value. This investment in an illiquid private company is inherently difficult to value given the lack of publicly available information. This investment may increase the volatility in our net income (loss) in future periods due to changes in the fair value of this investment. As of September 30, 2023, the carrying value of our equity investment was $3.8 million. See Note 5—Investments to our condensed consolidated financial statements included in Part I, Item 1 of this report.
Foreign Currency Risk
Our reporting currency is the U.S. dollar, while certain of our current subsidiaries have and future subsidiaries will be expected to have other functional currencies, including the British Pound, the Euro, and the Canadian dollar. Our international revenue, as well as costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. Accordingly, we are subject to foreign currency risk, which may adversely impact our financial results.
We are also exposed to foreign exchange rate fluctuations as we translate the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the translation adjustments resulting from the conversion of the financial statements of our foreign subsidiaries into U.S. dollars would result in a gain or loss recorded as a component of accumulated other comprehensive income (loss) which is part of stockholders’ equity.
For bookings made on our platform outside of the United States, we collect and hold the GBV denominated in foreign currency amounts. We then utilize these foreign currency denominated amounts to settle amounts due to pet care providers in the same currency. As relates to the net revenue earned on these bookings, we benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar. We partially offset this foreign currency risk by maintaining the foreign currency amounts in their local currency and using them to fund international operations in their functional currencies, when possible. The effect of movements in exchange rates on the remaining foreign currency amounts is recorded as unrealized gains or losses in other income (expense), net in our condensed consolidated statements of operations. For the three and nine months ended September 30, 2023, the net effect of foreign currency gains and losses was not material. At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk.
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Inflation Risk
We do not believe that inflation has had a material negative effect on our business, results of operations, or financial condition. A rise in pet care provider initiated prices has had the impact of higher revenues given our take rate structure. However, increased inflationary pressures poses risks in three areas of our business. First, our cost structure has increased due to higher wages over the past two years and could increase further due to increased prices from vendors. Second, pet care providers could increase prices on the platform so much that pet parent demand and bookings decline. Third, the overall price of travel could increase so much that demand for pet care services declines. Our inability or failure to offset such higher costs or any negative inflationary impact on demand could adversely affect our business, results of operations, or financial condition.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of such date.

In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Notwithstanding these material weaknesses, management has concluded that the condensed consolidated financial statements included in this report are fairly stated in all material respects in accordance with U.S. GAAP.
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, 2022 and 2021 and for the three years in the period ended December 31, 2022, we identified material weaknesses in our internal control over financial reporting that continue to exist as of September 30, 2023. 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.
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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.
Remediation Efforts to Address Previously Identified Material Weaknesses
Our management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation of previously identified material weaknesses. The following remediation measures are ongoing and include the following:
•Hiring additional finance and accounting personnel to bolster our accounting capabilities and capacity and to establish and maintain our internal controls;
•Designing additional controls for financial close and reporting including review of accounting policies, period end close procedures, and the preparation and review of quarterly and annual financial statements;
•Evaluating controls performed at key service organizations and designing additional controls to ensure the adequacy of our complementary user entity controls; and
•Engaging an external advisor to assist with documenting and testing the design and operating effectiveness of internal control over financial reporting and assist with the remediation of deficiencies, as necessary.
Although our remediation measures are ongoing, we believe the actions described below will contribute towards the remediation of the previously identified material weaknesses. During the nine months ended September 30, 2023 our ongoing remediation measures included the following:
•Performed training with control performers to improve documentation that supports effective control activities, including evidence of the completeness and accuracy of information produced by the entity;
•Hired a head of internal audit to monitor and assess our internal control environment;
•Redesigned, enhanced, and implemented certain IT general controls, including controls over the provisioning and monitoring of user access rights for certain systems, controls over batch jobs and data backups, and controls over program development approvals and testing. We are continuing to enhance controls over program change management;
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•Redesigned, enhanced, and implemented controls related to the identification of and accounting for certain non-routine, unusual or complex transactions, including controls over the preparation and review of accounting memoranda to address these matters;
•Redesigned, enhanced, and implemented controls over the preparation and review of journal entries, including controls over the segregation of duties;
•Redesigned, enhanced, and implemented controls to ensure appropriate segregation of duties related to account reconciliation preparation and review; and
•Began testing the operating effectiveness of internal controls over financial reporting.

We believe the measures described above will contribute toward the remediation of the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to review, optimize, enhance, and test our controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of the remediation measures described above. These material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Accordingly, the material weaknesses are not remediated as of September 30, 2023.
Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information
Item 1. Legal Proceedings.
For information regarding legal proceedings in which we are involved, including the September 2023 payment of a final settlement amount, see Note 9—Commitments and Contingencies—Litigation and Other Contingencies in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
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Item 1A. Risk Factors.

You should consider carefully the following risks and uncertainties, together with the other information in this report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 37 and our unaudited condensed consolidated financial statements and related notes beginning on page 7, and in our other public filings in evaluating our business. Current global economic events and conditions may amplify many of these risks. Our business, operating results, financial condition or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the following risks actually occur, our business, operating results, financial condition and prospects could be materially and adversely affected. In that event, the market price of our Class A Common Stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

Any decline or disruption in the travel and pet care services industries or an economic downturn could materially adversely affect our business, results of operations, and financial condition.

Our financial performance is substantially dependent on the strength of the travel and pet care services industries, which is affected in part by macroeconomic and geopolitical conditions. Sustained levels of increased inflation, rising interest rates, significant U.S. dollar and foreign currency fluctuations, lower consumer confidence, depressed consumer spending, higher levels of consumer debt, lower pet adoption levels, the number of pet owning households, a reduction in the volume of home sales and its impact on relocating households, geopolitical instability, economic uncertainty, slower economic growth or a recession, volatility in the stock market, any U.S. government shutdown, any further downgrades in the U.S. credit rating, and delays, pandemics or other health-related events, cancellations and other disruptions impacting the travel industry could adversely impact travel and demand for our services. For example, pet care providers have increased prices on the platform and may continue to raise prices to a degree that pet parent demand declines, and the overall price of travel could increase to a degree that demand for travel and thus travel-related pet care services declines. In addition to the impacts of COVID-19 and other non-COVID illnesses as discussed elsewhere in this report, other events beyond our control have resulted in and may continue to result in declines in travel or continued work-from-home policies. For example, the current armed conflicts between Ukraine and Russia and between Israel and Hamas and their resulting consequences, such as increasing fuel and commodity prices and the potential for political unrest or military conflict to spread, could materially adversely impact travel and demand for our services in all of our markets. Moreover, the resumption of repayments on federally-held student loans in October 2023 may adversely impact demand for our services in the United States. Because these events or concerns and the full impact of their effects are largely unpredictable and difficult to measure, they can dramatically and suddenly affect travel and work behavior by pet parents and therefore demand for our platform, which could materially adversely affect our business, operating results and financial condition.

Our financial performance is also subject to global economic conditions and their impact on levels of discretionary consumer spending. Downturns in worldwide or regional economic conditions or recessions beyond our control, such as the downturn resulting from the COVID-19 pandemic or a future downturn resulting from rising inflation or interest rates, lower consumer confidence, depressed consumer spending, higher levels of consumer debt, a reduction in the volume of home sales and its impact on relocating households, changes in monetary or fiscal policy, volatility due to geopolitical instability, the collapse of Silicon Valley Bank and other financial institutions, or the uncertainty arising from these events have led or could lead to a general decrease in travel and spending on pet care services. Future downturns in economic conditions or a recession in the United States or worldwide may materially adversely impact demand for our platform, our business, operating results and financial condition, including potential impairments. See “—Failure to successfully execute and integrate acquisitions or receive a favorable return on acquisitions or strategic investments could materially adversely affect our business, operating results and financial condition.”

We have incurred net losses in each year since inception and may not be able to achieve or sustain annual net income.

As of September 30, 2023, we had an accumulated deficit of $377.0 million. Historically, we have invested significantly in efforts to grow our pet parent and pet care provider network, introduced new or enhanced offerings and features, increased marketing spend, expanded operations, acquired and invested in other companies, and hired additional employees. We are passionate about continually enhancing the experience of pets, pet parents and pet care providers, which may not necessarily maximize short-term financial results. This focus may not be consistent with our short-term expectations and may not produce the long-term benefits expected. In the second quarter of 2020, as a result of the COVID-19 pandemic, we significantly reduced fixed and variable costs. Since then, we have made and expect to continue to make significant investments related to improving market conditions and operating as a public company. For example, we have significantly increased headcount as demand
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increased starting in 2021, invested in product enhancements and marketing efforts, acquired GoodPup, an early-stage company that operates a virtual dog training platform, and invested in another early-stage company with a complementary service offering. Additionally, stock-based compensation expense related to restricted stock units, or RSUs, and other equity awards will continue to be a significant expense in future periods as we grow as a company and grant additional RSUs. We may not succeed in increasing revenue sufficiently to offset these higher expenses or achieve a positive return on our acquisitions and investments, which would adversely impact our ability to achieve or sustain annual profitability.

Our revenue may not continue to grow over time and may slow or reverse again in the future.

Prior to COVID-19, we experienced significant revenue growth from 2016 to 2019, growing from $16 million to $95 million in revenue. In 2020, revenue decreased approximately 49% from 2019 due to the COVID-19 pandemic. 2021 revenue increased approximately 16% from 2019 levels, 2022 revenue increased approximately 58% from 2021 levels and revenues for the nine months ended September 30, 2023 increased approximately 36% from the same period in 2022. However, such growth may again slow or reverse due to the other risks described in these “Risk Factors” and elsewhere in this report. Investors should not rely on our revenue or revenue growth for any previous quarterly or annual period as any indication of revenue or revenue growth in future periods.

Future revenue growth depends on the growth of the number of pet parents on our platform, the ABV and our take rates, the frequency with which pet parents seek to book services, our ability to attract sufficient high-quality pet care providers to meet pet parent demand, cancellation rates, and the effects of general economic and business conditions worldwide, including trends in the travel industry, inflation, consumer confidence and spending, pet adoption levels, the volume of home sales and its impact on relocating households, fiscal and monetary policy, fuel and commodity costs, and interest rates. We also expect to continue to make investments in the development and expansion of our technology and business, which may not result in increased revenue or growth. If the demand for access to online marketplaces for individual pet care services does not grow, or if we are unable to maintain market share, our revenue growth rate could be materially adversely affected.

A softening of demand, especially in the acquisition of new pet parents which is an important driver of future revenue, may be caused by events outside of our control, such as lower pet adoption levels, the number of pet owning households, a reduction in the volume of home sales and its impact on relocating households, COVID-19, other non-COVID illnesses or health-related events, changes in pet parent and pet care provider preferences, an economic downturn, or other risks described in these “Risk Factors” and elsewhere in this report, will result in decreased revenue. For example, starting in the second quarter of 2022 and continuing through September 2023, we saw the Google query volume for some key terms like “dog boarding,” which is correlated to demand from new pet parents, decreasing significantly year-over-year as compared to the outsized gains of 2021, although still significantly above 2019 levels. Moreover, while ABVs have increased since the second quarter of 2021 helping to drive revenue growth, the rate of increases has moderated since the second quarter of 2022, which may impact future revenue growth and growth rates. Moreover, we have observed lower ABV from international bookings compared to those from the United States. As such, a continued increase in international bookings relative to U.S. bookings could further moderate or reduce our overall ABV growth.

Our Adjusted EBITDA may not continue to grow over time and may slow or reverse again in the future.

Although our Adjusted EBITDA has continued to improve on an annual basis and was positive for the first time during fiscal 2021 and again during fiscal 2022 and continued to grow during the first three quarters of 2023, we may experience declines in Adjusted EBITDA on a quarterly or annual basis if general economic and business conditions worsen. See “—Any decline or disruption in the travel and pet care services industries or an economic downturn could materially adversely affect our business, results of operations, and financial condition.” Other developments in our business, including lower than anticipated revenue and higher operating expenses due to increased investments in the business, higher personnel costs, increased advertising, marketing and stock-based compensation expenses, operating costs from acquisitions, or unanticipated events, could negatively impact our future Adjusted EBITDA. If our future Adjusted EBITDA fails to meet investor or analyst expectations, it is likely to have a materially negative effect on our stock price. Adjusted EBITDA is a supplemental metric that is not calculated and presented in accordance with GAAP. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure stated in accordance with GAAP, and for additional information.

The COVID-19 pandemic and the impact of actions to mitigate the COVID-19 pandemic have materially adversely impacted and may continue to materially adversely impact our business, operating results and financial condition.
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The COVID-19 pandemic resulted in new habits such as increased adoption of remote and hybrid working arrangements and increased reliance on online meeting tools rather than in-person meetings and business travel, and at various points during the pandemic, governments imposed various restrictions to limit the spread of COVID-19. The spread of any new variants or sub-variants of COVID-19, especially among pet parents, pet care providers and our employees, the return of any of these government restrictions, and the entrenchment of or changes in the new habits regarding working arrangements and travel may have a material adverse impact on our long-term business, operations and financial condition, and the availability of and demand for pet care.

Although demand for our offerings resumed in May 2021 as government restrictions lifted and we have since achieved record quarterly and annual highs for new and repeat bookings, GBV and revenue, we continued to see demand adversely impacted through the end of 2022 as a result of each COVID-19 wave or variant and other non-COVID seasonal illnesses and cancellation rates that remained elevated compared to pre-pandemic levels. Despite achieving increases in 2022 and year-to-date 2023 revenue, GBV and new and repeat bookings as compared to 2021 and year-to-date 2022, respectively, the effect and extent of the impacts of COVID-19 on our business in the near and medium-term continue to be uncertain and difficult to predict. As our performance in 2021 benefited from a spike in travel demand from the vaccine roll-outs and the surge in pandemic pet adoptions and our performance in the nine months ended September 30, 2023 benefited in comparison to the prior year period due to the adverse demand impact resulting from the BA.5 variant wave during that period, the year-over-year growth rates involving these periods should not be considered representative of the long-term growth rate performance of our business. Accordingly, our business may again be negatively impacted if governmental orders and advisories are reinstated due to novel strains of COVID-19 or if our pet parent and pet care provider base are infected with COVID-19 or non-COVID illnesses that may result from reduced immunity caused by social distancing during the pandemic or their behavior is impacted due to such infections or new COVID-19 variants or sub-variants, and demand may remain depressed for a significant length of time if COVID-19 results in long-term changes in behavior. We cannot predict when, if ever, cancellation rates will return to pre-pandemic levels, nor do we know how pet parent and pet care provider behavior will be impacted even if pre-pandemic levels of cancellation rates return.
In the second half of 2022, we adopted a policy empowering department heads to determine the in-office and remote work requirements for their teams. While we will maintain office space for employees to work, learn and collaborate, most of our employees are still working remotely the majority of the time and these arrangements and similar remote working arrangements available to many pet parents, especially if maintained over the long-term, could have a number of materially negative impacts on our business, including:
•reduced or flat demand for daytime pet care services due to pet parents’ presence at home;
•slower execution of our business plans and reduced productivity and availability of key personnel, other employees and third-party service providers that perform critical services;
•increased consumer privacy, information technology security and fraud risks;
•impairment charges, which may be material, related to real property lease agreements if we exit lease agreements or enter into subleases, or remote work arrangements become permanent; and
•increased costs, which may be material, for travel and software tools.

The extent of the longer term impact of COVID-19 on our business and financial results will depend largely on future developments, including the development, severity and transmissibility of novel strains of the COVID-19 virus, any non-COVID illnesses that may result from reduced immunity caused by social distancing during the pandemic, impacts on travel or work behavior, the impact on capital and financial markets and on the United States and global economies, the availability, uptake, and effectiveness of vaccines and boosters, the prevalence of travel restrictions, any risk or perceived risk that pets may be a vector for COVID-19, and governmental or regulatory orders that impact our business, all of which are highly uncertain and cannot be predicted. Any of the foregoing factors, or other cascading effects of COVID-19 that are not currently foreseeable, may materially adversely impact our business, operating results, financial condition and prospects.

Online marketplaces for pet care are still in relatively early stages of growth and if demand for them does not continue to grow, grows slower than expected, or fails to grow as large as expected, our business, financial condition and operating results could be materially adversely affected.

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Demand for booking pet care through online marketplaces has grown rapidly since the 2011 launch of our platform, but such platforms are still relatively new and it is uncertain to what extent market acceptance will continue to grow, if at all. Our success will depend to a substantial extent on the willingness of people to obtain pet care through platforms like ours. If the public does not perceive these services as beneficial, or chooses not to adopt them, or instead adopts alternative solutions, then the market for our platform may not further develop, may develop slower than we expect, or may not achieve the growth potential we expect, any of which could adversely affect our business, financial condition and operating results.

Our marketing efforts to help grow the business may not be effective.

Promoting awareness of our platform is important to our ability to grow the business and to attract new pet parents and pet care providers. Since inception, our user base has grown in large part as a result of word-of-mouth, complemented by paid and organic search, social media and other online advertising and infrequent television advertising. Many of our marketing efforts to date have focused on amplifying and accelerating this word-of-mouth momentum and such efforts may not continue to be effective. Although we continue to rely significantly on word-of-mouth, organic search and other unpaid channels, we believe that a significant amount of the growth in the number of pet parents and pet care providers that use our platform also is attributable to our paid marketing initiatives.

Prior to the impact of COVID-19, marketing efforts included referrals, affiliate programs, free or discount trials, partnerships, display advertising, billboards, radio, video, television, direct mail, social media, email, podcasts, classified advertisement websites, mobile “push” communications, search engine optimization and paid keyword search campaigns. During the height of the COVID-19 pandemic in 2020 and 2021, we managed marketing spend carefully, focusing expenses primarily in keyword search campaigns and testing. More recently, we have invested into the recovery with increased spending on social media, streaming video and linear television, with a careful eye toward measurable results. Our marketing initiatives may become increasingly expensive and generating a meaningful return on these initiatives may be difficult. Even if we successfully increase revenue as a result of paid marketing efforts, we may not offset the additional marketing expenses incurred. Moreover, marketing investments are made ahead of GBV and bookings, and thus marketing as a percentage of revenue is correlated to increases in cancellation rates as we incur marketing expense for a booking that is not completed. Some or all of our marketing efforts have been less effective in periods of lower overall category demand and may be limited in their ability to help us grow our business in the future.

Some providers of consumer devices, mobile or desktop operating systems, and web browsers have, or have announced plans to, disable or block tracking technologies (also known as cookies) which, if widely adopted, could also result in online tracking methods becoming significantly less effective. For example, some of our marketing measurement and targeting tools, as well as those used by our media partners, rely on third-party cookies. As access to user cookies is restricted, we may lose the ability to target our advertisements and measure their effectiveness and efficiency. As a result, the ability of our media placements to reach their intended audiences may be reduced, and we may decide to reduce or completely eliminate spending on the affected marketing channels, which could reduce our ability to effectively or efficiently acquire new customers. Similarly, our vendors, particularly those providing advertising and analytics products and services have modified and may continue to modify their products and services in ways that reduce the efficiency of our marketing efforts and our access to data about the use of our platform. In addition, certain laws regulate the use of cookies and other tracking technologies, which limit the effectiveness of our marketing activities, impact our search engine rankings, divert technology personnel resources, increase costs, and subject us to additional liabilities. See the section titled “—Risks Related to Privacy and Technology” below. Limits to our use of these technologies could harm our ability to personalize the experience of buyers, increase our costs, and limit our ability to attract and retain pet care providers and pet parents on cost-effective terms. If marketing efforts to help grow the business are not effective, our business, financial condition and operating results could be materially adversely affected.

Off-platform bookings and payments have had and may continue to have a material adverse effect on our business, operating results and financial condition.
Certain pet parents reach out to pet care providers (and vice versa) and incentivize them to book directly with them and bypass our platform, which reduces the use of our platform. Additionally, certain pet care providers source bookings through our platform and then complete the transaction off of our platform and may continue to do so or may increase the share of bookings that they take off our platform. The reasons for this behavior may include pricing, the fees we charge to use our platform, and negative perceptions about the usability and functionality of the Rover app. We endeavor to reduce this activity through continual improvements to our platform and other offerings, such as the Rover Guarantee, that incentivize pet care providers and pet parents to transact through Rover. In addition, our matching algorithm is designed to identify signals of high quality care that are observable from platform transactions, such as repeat booking activity, and to increase the chance that pet care providers exhibiting such signals are featured to pet parents. We also have notifications in the platform that encourage pet care
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providers to book through the platform, and we identify and deactivate serial diverters from the platform. Despite these attributes, we cannot prevent off-platform transactions entirely.

If we fail to retain existing pet care providers or attract new pet care providers, or if pet care providers fail to provide high-quality offerings, our business, operating results and financial condition would be materially adversely affected.

Pet care providers have a range of options for offering their services and they may advertise their offerings in multiple ways that may or may not include our platform. Some pet care providers have chosen to cross-list their offerings on other platforms, which reduces the availability of such offerings on our platform. When offerings are cross listed, the price paid by pet parents on our platform may be or may appear to be less competitive for many reasons, including differences in fee structure and policies, which may cause pet parents to book with competitors. Additionally, as noted in the previous risk factor, certain pet parents and pet care providers may complete their transactions off-platform. A change in our ability to attract pet care providers to our platform, enable them to generate income, and dissuade them from sourcing bookings off our platform could negatively impact our ability to provide sufficient offerings to attract and serve pet parents and, in turn, have a significant negative impact on our GBV, bookings, revenue, operating results and financial condition.

Our business depends on pet care providers maintaining their use of our platform and engaging in practices that encourage pet parents to book their services, including increasing the number of offerings that are available to book, providing timely responses to inquiries from pet parents, offering a variety of desirable and differentiated offerings at competitive prices that meet the expectations of pet parents, and offering exceptional services to pets and pet parents. These practices are outside of our control. If pet care providers do not establish or maintain enough availability, the number of bookings declines for a particular period, or pet care provider pricing is unattractive or insufficient, revenue will decline and our business, operating results and financial condition would be materially adversely affected.

Other factors that could adversely impact the availability of pet care providers and the number of offerings on our platform include:
•our inability to offer sufficient tools or product features to assist them;
•negative perceptions about, or our inability to satisfy expectations related to, the usability and functionality of the Rover app;
•our inability to attract large number of prospective pet parents to our platform;
•fees we charge for our facilitation and support services;
•pet care providers choosing other third-party platforms over our platform;
•changes to tax reporting requirements, including significantly reduced U.S. reporting thresholds for payment processors that are scheduled to take effect for the 2023 tax year and other tax reporting requirements scheduled to take effect in Europe and Canada (see “—Our business and users are subject to tax information reporting requirements in a number of jurisdictions, which could increase our operational costs and negatively impact the user experience and bookings on our platform” below);
•economic, social and political factors, including improving economic conditions that could lead to pet care providers obtaining additional or alternative opportunities for work;
•negative perceptions of trust and safety on and off our platform;
•negative experiences with pets and pet parents, including pets who damage pet care provider property;
•COVID-19, non-COVID illnesses or other pandemics or health concerns and their impact on pet care providers;
•our efforts or failure or perceived failure to comply with regulatory requirements;
•any discontinuation of, or reduction in reimbursement benefits under, the Rover Guarantee (which reimburses both pet parents and pet care providers up to $25,000 for costs arising from certain injuries or damages that occur during a service booked and paid through Rover and up to $100,000 (or until June 2023, up to $1 million) for costs arising from damage to pet parent property or certain third-party injuries, subject to terms and conditions thereunder);
•large numbers of pet parent cancellations; and
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•removal of pet care providers from our platform due to violation of our community standards or other factors we deem detrimental to our community.

If we are unable to attract and retain individual pet care providers in a cost-effective manner, or at all, our business, operating results and financial condition would be materially adversely affected.

If we fail to retain existing pet parents or attract new pet parents, or if pet parents fail to receive high-quality offerings, our business, operating results and financial condition would be materially adversely affected.

Our success depends significantly on retaining existing pet parents and attracting new pet parents to use our platform, increasing the number of repeat bookings that pet parents make and attracting them to different types of service offerings on our platform. Pet parents have a range of options for meeting their pet care needs and may choose to arrange for pet care services with pet care providers outside of our platform. Our ability to attract and retain pet parents could be materially adversely affected by a number of factors, such as:
•pet care providers failing to provide differentiated, high-quality and adequately available pet care services at competitive prices;
•negative perceptions about, or our inability to satisfy expectations related to, the usability and functionality of the Rover app;
•increasing prices set by pet care providers;
•fees we charge for our facilitation and support services, including any increases to our fees such as the implementation of a shift during 2023 of all legacy pet parents in the United States and Canada to the 11% fee structure that we implemented for new owners in 2021;
•taxes we may collect in certain jurisdictions;
•our failure to facilitate new or enhanced offerings or features that pet parents value;
•large numbers of pet care provider cancellations;
•macroeconomic, geopolitical and other conditions, including sustained levels of increased inflation and rising interest rates, lower consumer confidence, depressed consumer spending, higher levels of consumer debt, lower pet adoption levels, the number of pet owning households, a reduction in the volume of home sales and its impact on relocating households, any U.S. government shutdown, and slower economic growth or recession, outside of our control affecting travel or business activities generally;
•elevated levels of delays or cancellations impacting travel activities;
•negative perceptions of the trust and safety of our platform;
•increased restrictions on travel and immigration;
•COVID-19, other non-COVID illnesses, or other pandemics or health concerns and their impact on pet parents;
•the impact of climate change on travel and seasonal destinations (such as fires, floods and other natural disasters);
•the performance of our matching algorithms;
•pet parents not receiving timely and adequate support from us;
•negative associations with, or reduced awareness of, our brand;
•declines and inefficiencies in our marketing efforts;
•our platform not being perceived as easy to navigate, including due to pet parents experiencing an unsatisfactory sign-up, search, booking, or payment experience on our platform or our failure to provide a user experience that meets rapidly changing expectations;
•any discontinuation of, or reduction in reimbursement benefits under, the Rover Guarantee such as the June 2023 reduction in the amount reimbursed for costs arising from damage to pet parent property or certain third-party injuries from $1 million to $100,000;
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•any actual or perceived breach of privacy, data protection or security on our platform;
•our efforts or failure or perceived failure to comply with regulatory requirements; and
•our decision to remove pet parents from our platform for not adhering to our community standards or other factors we deem detrimental to our community.

Our business and users are subject to tax information reporting requirements in a number of jurisdictions, which could increase our operational costs and negatively impact the user experience and bookings on our platform.

In the United States, we are required to report payments we process on our platform on behalf of pet care providers who are U.S. persons if they reach certain payment thresholds to the Internal Revenue Service, or IRS, and certain states. The IRS threshold and certain state thresholds are scheduled to significantly decrease from more than 200 transactions per year and exceeding an aggregate amount of $20,000 in gross processed payments to $600 in gross processed payments starting with the 2023 tax year pursuant to the American Rescue Plan of 2021. In addition to our changing and currently uncertain tax information reporting requirements in the United States, there are a number of international jurisdictions where we operate that have or are in the process of implementing new tax information reporting requirements. For example, in the European Union we are subject to tax information reporting requirements referred to as DAC7 with no minimum threshold starting with the 2023 tax year and Canada will have similar requirements starting with the 2024 tax year.

These obligations have and are expected to continue to increase our operational costs and could negatively impact the pet care provider experience. In the U.S., this may be due to confusion resulting from the fact that amounts reported on the tax information reporting forms are not reduced to reflect refunds or fees we retain. These obligations could also make our platform less attractive to pet care providers, who may not wish to be subject to these tax information reporting requirements, may not wish to provide their tax identification information, may fail to provide accurate information, or may find their reporting obligations confusing, any of which could result in increased off-platform bookings and payments and decreased pet care provider retention. Any failure by us to meet tax information reporting requirements or to provide a streamlined pet care provider experience in collecting required information or any decrease in pet care provider retention or increase in off-platform bookings and payments resulting from the tax information reporting requirements could negatively impact our business, financial condition and operating results.

The success of our platform relies on our matching algorithms and other proprietary technology and any failure to operate and improve our algorithms or to develop other innovative proprietary technology effectively could materially adversely affect our business, financial condition and operating results.

We use proprietary Rover matching algorithms in an effort to maximize pet parent and pet care provider satisfaction and retention, as well as to optimize return on marketing expenses. Built to improve with data science, we have carefully designed algorithms to leverage growing scale by helping pet parents find increasingly better matches as our provider network expands. Successfully using our algorithms to match pet parents and pet care providers is crucial to our continued success, as better matches can lead to more bookings, more data and, in turn, further improvements to our algorithms. Any failure to successfully operate or improve our algorithms or to develop other innovative proprietary technology could materially adversely affect our ability to maintain and expand our business. Fewer matches could lead to fewer bookings, which could in turn lead to less or lower quality data, affecting our ability to improve our algorithms and maintain, market and scale our platform effectively. Our competition may increase with the widespread adoption of artificial intelligence, or AI, and machine learning.

Additionally, there is increased governmental interest in regulating technology companies in areas including algorithm-based discrimination. Any failure, or perceived failure, or negative consequences associated with our efforts to comply with any present or future laws or regulations in this area could subject us to claims, actions and other legal and regulatory proceedings, fines or other penalties and other enforcement actions and result in damage to our reputation and adversely affect our business, financial condition and operating results. These risks may grow should we increase our use of AI and machine-learning systems, which are subject to increasing litigation and regulatory scrutiny, and may have errors or inadequacies that are not easily detectable. These systems may inadvertently reduce our efficiency, may involve unclear intellectual property rights or interests, or may cause unintentional or unexpected outputs that are incorrect, do not align with our brand or business goals, or do not comply with our policies or applicable legal requirements. Any errors or vulnerabilities discovered in our code after release could also result in damage to our reputation, loss of pet parents and pet care providers, loss of revenue, or liability for damages, any of which could adversely affect our growth prospects and our business.

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Our fee structure is impacted by a number of factors and ultimately may not be successful in attracting and retaining pet parents and pet care providers.

Demand for our platform is highly sensitive to a range of factors, including the prices that pet care providers set for their services, the level of potential earnings required to attract and retain pet care providers, and the fees we charge pet care providers and pet parents. Many factors, including operating costs, legal and regulatory requirements, constraints or changes and our current and future competitors’ pricing and marketing strategies, could significantly affect our pricing strategies. Existing or future competitors offer, or may in the future offer, lower-priced or a broader range of offerings. Similarly, certain competitors may use marketing strategies that enable them to attract or retain pet parents or pet care providers at a lower cost than us. There can be no assurance that we will not be forced, through competition, regulation, or otherwise, to reduce the fees charged to pet care providers and pet parents, or to increase marketing and other expenses to attract and retain pet parents and pet care providers in response to competitive pressures.

We have launched and may in the future launch new fee strategies or modify existing fee strategies, any of which may not ultimately be successful in attracting and retaining pet parents and pet care providers. For example, during 2023, we shifted all legacy pet parents in the United States and Canada to the 11% fee structure that we implemented for new pet parents in 2021, the majority of whom were at the legacy 7% fee rates. Further, pet parents’ price sensitivity may vary by geographic location. In particular, our continued international expansion may require us to change our fee structure and to adjust to different cultural norms in different locales, which efforts may not be successful. While we attempt to set fees based on prior operating experience and pet parent and pet care provider feedback and engagement levels, our assessments may not be accurate. In addition, if the offerings on our platform change, then we may need to revise our fee structures.

The business and industry in which we participate are highly competitive and we may be unable to compete successfully with our current or future competitors.

We operate in a highly competitive environment and face significant competition in attracting pet care providers and pet parents. Pet parents have a range of options to find and book pet care offerings, both online and offline. We believe that our competitors include:
•friends, family and neighbors that pet parents go to for pet care within their personal networks;
•local independent operators;
•large, commercial providers such as kennels and daycares;
•online aggregators and directories, such as Craigslist, Nextdoor, and Yelp; and
•other digital marketplaces, including Wag and the pet care offerings on Care.com in the United States, small operators such as Gudog and Pawshake outside of the United States, and TrustedHousesitters in and outside the United States.

In addition, other companies with significantly greater resources than ours may enter the industry and we may not effectively compete against them.

We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including:
•the popularity and adoption of online marketplaces to obtain services from individual pet care providers;
•the popularity, utility, ease of use, performance and reliability of our offerings compared to those of our competitors;
•our ability to successfully adapt to or integrate new technologies, such as AI;

•the effectiveness and efficiency of our marketing efforts and those of our competitors;
•our reputation and brand strength relative to our competitors;
•the prices of offerings and the fees we charge pet care providers and pet parents on our platform;
•our ability to attract and retain qualified pet care providers and pet parents;
•the perceived safety and cleanliness of offerings on our platform;
•cancellation policies;
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•our ability, and the ability of our competitors, to develop new offerings and make acquisitions and investments;
•our ability to establish and maintain relationships with partners;
•changes mandated by, or that we elect to make to address, legislation, regulatory authorities or litigation, including settlements, judgments, injunctions and consent decrees;
•our ability to attract, retain and motivate talented employees;
•our ability to raise additional capital; and
•acquisitions or consolidation within our industry.

Currently, our primary competition is from the friends, family and neighbors to whom pet parents often turn for pet care services within their personal networks. Given that online marketplaces offering pet care services are a relatively nascent business model and are rapidly evolving, reliance on personal networks is still prevalent. Current and potential competitors (including any new entrants into the market) may enjoy substantial competitive advantages over us, such as greater name recognition, longer operating histories, greater category share in certain markets, market-specific knowledge, established relationships with local pet parents and pet care providers and larger existing user bases in certain markets, more successful and efficient marketing capabilities and substantially greater financial, technical and other resources than we have. Competitors may be able to provide pet parents with a better or more complete experience and respond more quickly and effectively than we can to new or changing opportunities, technologies (like AI), standards, or pet care provider and pet parent requirements or preferences.

The pet care industry also may experience significant consolidation or the entrance of new players. Some of our competitors have adopted and could further adopt aspects of our business model, which could affect our ability to differentiate our offerings from competitors. Increased competition could result in reduced demand for our platform from pet care providers and pet parents, slow our global growth and materially adversely affect our business, operating results and financial condition. Consolidation among our competitors could give them increased scale and may enhance their capacity, abilities and resources and lower their cost structures. In addition, emerging start-ups may be able to innovate and focus on developing a new product or service faster than we can or may foresee consumer need for new offerings or technologies before we do.

New offerings and initiatives can be costly and if we unsuccessfully pursue such offerings and initiatives, we may fail to grow and our business, operating results, financial condition and prospects would be materially adversely affected.

We have invested, and plan to continue to invest, in new offerings and initiatives that differentiate us from our competitors. For example, during 2022 we acquired GoodPup, an early-stage company that operates a virtual dog training platform, and made a small investment in an early-stage company with a complementary service offering, and have increased investment in The Dog People, our pet-related blog, and The Rover Store, which offers Rover-branded merchandise for sale alongside third-party merchandise. In 2023, we launched Rover Gear, our first line of dog walking products and everyday essentials for pet parents. Developing new offerings increases our expenses and organizational complexity and we have and may continue to experience difficulties in developing these new offerings.

Our new offerings have a high degree of risk, as they may involve unproven businesses with which we have limited or no prior development or operating experience. There can be no assurance that consumer demand for such offerings will exist or be sustained at the levels that we anticipate, that we will be able to successfully manage the development and delivery of such offerings, or that any of these offerings will gain sufficient market acceptance to generate sufficient revenue to offset associated expenses or liabilities. For example, we previously introduced, then later deactivated, an on-demand dog walking offering and a grooming offering and recently recognized a non-cash impairment charge of $6.9 million related to our acquisition of GoodPup (see Note 8—Goodwill and Intangible Assets in Part I, Item 1 of this report). It is also possible that offerings developed by others will render our offerings noncompetitive or obsolete. If we do not realize the expected benefits of our product and other investments, we may fail to grow and our business, operating results and financial condition would be materially adversely affected.

We rely on online search engines to drive traffic to our platform to grow revenue and if we are unable to drive traffic cost-effectively, it would materially adversely affect our business, operating results and financial condition.

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Our success depends in part on our ability to attract pet care providers and pet parents through unpaid internet search results on search engines. The vast majority of our unpaid internet search results comes from a single search platform. The number of pet care providers and pet parents that we attract to our platform from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can be affected by many factors, some of which are under our direct control that we may not execute effectively to retain prominent enough search rankings, but many of which are not under our direct control and may change frequently. For example, online search engines have adapted and may continue to adapt their ranking algorithms to respond to the growing use of artificially-generated content, resulting in their increased scrutiny of our listings and a negative impact on our search rankings. As a result, links to our website or mobile applications may not be prominent enough to drive traffic to our website and we may not know how or otherwise be able to influence the results. In some instances, search engine companies may change these rankings in a way that promotes their own competing products or services or the products or services of one or more of our competitors. Search engines may also adopt a more aggressive auction-pricing system for paid search keywords that would cause us to incur higher advertising costs or reduce our market visibility to prospective pet parents. Search engines may also continue to expand their voice and AI capabilities resulting in unpredictable search result preferences and outcomes. Any reduction in the number of pet care providers and pet parents directed to our platform due to search engines ranking our listings lower than they currently do could adversely affect our business, financial condition and operating results.

Further, we have used performance marketing products offered by search engines and social media platforms to distribute paid advertisements that drive traffic to our platform. A critical factor in attracting pet care providers and pet parents to our platform has been how prominently offerings are displayed in response to search queries for key search terms. The success of pet care services logistics and our brand has at times led to increased costs for relevant keywords as our competitors competitively bid on our keywords, including our brand name. We may not be successful in our efforts to drive traffic growth cost-effectively. If we are not able to effectively increase our traffic growth without increases in spend on performance marketing, our business, operating results and financial condition could be materially adversely affected.

Maintaining and enhancing our brand reputation is critical to our growth and negative publicity could damage our brand, thereby harming our ability to compete effectively, which could materially adversely affect our business, operating results and financial condition.

Maintaining and enhancing our brand reputation is critical to our ability to attract pet care providers, pet parents and employees, to compete effectively, to preserve and deepen the engagement of our existing pet care providers, pet parents and employees, to maintain and improve our standing in the communities where pet care providers operate, including our standing with community leaders and regulatory bodies, and to mitigate legislative or regulatory scrutiny, litigation and government investigations. We are heavily dependent on the perceptions of pet care providers and pet parents who use our platform to help make word-of-mouth recommendations that contribute to our growth. Negative perception of our platform or company may harm our reputation, brand and local network effects and could potentially lead to increased regulatory or litigation exposure, including as a result of:
•complaints or negative publicity (media reports, social media posts, and blogs) about us, our platform, pet parents, pet care providers, our third-party background check provider, third-party identity verification provider, or our policies and guidelines;
•illegal, negligent, reckless, or otherwise inappropriate behavior by pet care providers, pet parents or third parties;
•actual or rumored injuries or other incidents involving the safety or security of pets, pet care providers, pet parents, or other members of the public, including incidents that are mistakenly attributed to us and any resulting media coverage;
•a pandemic or an outbreak of disease, such as the COVID-19 pandemic, in which constituents of our network become infected;
•fraudulent activity and transactions on our platform;
•frequent or last-minute cancellations by pet care providers or pet parents;
•actual or perceived disruptions or defects in our platform, such as site outages, payment disruptions, privacy or data security breaches, other security incidents, or other actual or perceived incidents that may impact the reliability of our services;
•litigation over, or investigations by regulators into, our platform;
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•users’ lack of awareness of, or compliance with, our policies;
•changes to our platform policies that users or others perceive as overly restrictive, permissive, unclear, or inconsistent with our values or mission;
•failure to enforce our policies in a manner that users perceive as effective, fair and transparent;
•an actual or perceived failure to comply with legal, tax and regulatory requirements;
•a failure, or perceived failure, to act responsibly in a number of areas, including animal welfare, safety, data security, privacy and data protection, diversity and non-discrimination, concerns relating to the “gig” economy, litigation and response to regulatory activity and local communities;
•our current and future business partners or involvement with companies in which we have investments;
•a failure to operate our business in a way that is consistent with our values and mission;
•inadequate, untimely or unsatisfactory user support experiences or resolutions;
•illegal or otherwise inappropriate behavior by our management team or other employees or contractors;
•negative responses by pet parents or pet care providers to new services on our platform or other offerings;
•a failure to register our trademarks and prevent or defend against misappropriation or third-party challenges to our existing or new trademarks;
•negative perception of our treatment of employees, pet parents, pet care providers, or of our response to employee, pet parents and pet care provider sentiment related to political or social causes or actions of management; or
•any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or our industry.

For example, as a result of past complaints and negative publicity, some pet care providers and pet parents have refrained from, and may in the future refrain from, offering services through our platform or using our platform.

In addition, we rely on pet parents to provide trustworthy reviews and ratings that other pet parents may rely upon to help decide whether or not to book a particular offering. We rely on these reviews to further strengthen trust among members of our community. Users of our platform may be less likely to rely on reviews and ratings if they believe that our review system does not generate trustworthy reviews and ratings. We have procedures in place to combat fraud or abuse of our review system, but cannot guarantee that these procedures are or will be effective. An actual or perceived failure of our review system could reduce trust within our community and damage our brand reputation and could materially adversely affect our business, operating results and financial condition.

Actions by pet care providers or pet parents that are criminal, violent, inappropriate, dangerous, or fraudulent may undermine the safety or the perception of safety of our platform and materially adversely affect our reputation, our ability to attract and retain pet care providers and pet parents, business, operating results and financial condition.

We have no control over or ability to predict the specific actions of our users and other third parties during the time that pets or pet parents are with pet care providers or otherwise and cannot guarantee the safety of pets, pet care providers, pet parents and third parties. The actions of pets, pet care providers, pet parents and other third parties may result in pet and human injuries, fatalities, fraud, invasion of privacy, property damage, discrimination, or other harms, which have created and could continue to create brand reputational damage and potential legal or other substantial liabilities for us.

All new pet care providers on our platform in the United States and Canada undergo third-party background checks before they can offer their services on our platform. U.S. pet care providers are checked against national criminal offense databases, sex offender registries and certain regulatory, terrorist and sanctions watchlists. Any pet care provider in North America who creates a new profile is required to complete an enhanced background check. These enhanced checks are more comprehensive and include a manual search of county-level databases. In the United Kingdom and Western Europe, we use a third party to conduct identity verification on all pet care providers. Pet care provider profiles in all geographies are also subject to review and approval by our team of pet care provider specialists.
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We do not verify the identity of, or require background checks for, pet parents, nor do we verify or require background checks for third parties who may be present during a service made through our platform. In addition, we do not currently and may not in the future require pet care providers to re-verify their identity or undergo subsequent background checks following the successful completion of their initial screening process. If a pet care provider engages in criminal activity after the third-party background check has been conducted, we may not be informed of such criminal activity and this pet care provider may continue offering services through our platform. If we choose to engage in more frequent background checks in the future, we may experience a decrease in pet care provider retention, which may adversely impact our platform.

Our screening processes rely on, among other things, information provided by pet care providers and pet parents, the ability to validate that information, the accuracy, completeness and availability of the underlying information relating to criminal records, the digitization of certain records, the evolving regulatory landscape in this area, such as relating to data privacy, data protection and criminal background screening, and the effectiveness of third-party service providers that may fail to conduct such background checks adequately or disclose information that could be relevant to a determination of eligibility. These processes are beneficial, but not exhaustive and have limitations. Background checks and identity verification checks have been and may in the future be, or be perceived to be, inaccurate, insufficiently inclusive of relevant records or otherwise inadequate or below expectations. As a result, pet care providers who otherwise would be barred from using our platform may be approved to offer services via our platform and some pet care providers may be inadvertently excluded from our platform. There can be no assurances that the screening measures we use will significantly reduce criminal or fraudulent activity on our platform.

In addition, we do not proactively independently verify the safety, suitability, location, quality, compliance with our policies or standards or legal compliance, of pet care providers’ offerings for individual pets and pet parents or the suitability, qualifications, or credentials of pet care providers. Where we have undertaken the verification or screening of certain aspects of pet care provider qualifications and offerings, the scope of such processes may be limited and rely on, among other things, information provided by pet care providers and the ability of our internal teams or third-party vendors to adequately conduct such verification or screening practices. In addition, we do not take steps to re-verify or re-screen pet care provider qualifications or offerings following initial review. We have relied in the past and may continue in the future to rely on pet care providers and pet parents to disclose information relating to their offerings and such information may be inaccurate or incomplete. We have created policies and standards to respond to issues reported with offerings, but certain offerings may pose heightened safety risks to individual users because those issues have not been reported to us or because our customer support team has not taken the requisite action based on our policies. We rely, at least in part, on reports of issues from pet care providers and pet parents to investigate and enforce many of our policies and standards. In addition, our policies may not contemplate certain safety risks posed by offerings or by individual pet care providers or pet parents or may not sufficiently address those risks.

We also have faced or may face civil litigation, regulatory investigations and inquiries involving allegations of, among other things, unsafe or unsuitable offerings, discriminatory policies, data processing, practices or behavior on and off our platform or by pet care providers, pet parents and third parties, general misrepresentations regarding the safety or accuracy of offerings on our platform and other pet care provider, pet parent, or third-party actions that are criminal, violent, inappropriate, dangerous, or fraudulent. While we recognize that we need to continue to build trust and invest in innovations that will support trust when it comes to our policies, tools and procedures to protect pet care providers, pet parents and the communities in which pet care providers operate, we may not be successful in doing so. Similarly, offerings that are inaccurate, of a lower than expected quality, or that do not comply with our policies may harm pet parents and public perception of the quality and safety of offerings on our platform and materially adversely affect our reputation, business, operating results and financial condition.

We have a limited operating history in an evolving industry, which makes it difficult to evaluate prospects and may increase the risk that we will not be successful.

We launched operations in 2011 and since then have increased the number of local markets in which we offer services (including Canada, the United Kingdom and Western Europe) and expanded our platform features and services. This limited operating history and our evolving business make it difficult to evaluate our prospects and the risks and challenges we may encounter. These risks and challenges include, amongst others disclosed in this “Risk Factors” section, our ability to:
•accurately forecast our revenue and plan our operating expenses;
•increase the number of and retain existing pet parents and pet care providers that use our platform;
•successfully compete with current and future competitors;
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•successfully expand our business in existing markets and enter new local markets and geographies;
•anticipate and respond to macroeconomic changes and changes in the markets in which we operate;
•maintain and enhance the value of our reputation and brand;
•adapt to rapidly evolving trends in the ways pet care providers and consumers interact with technology;
•avoid interruptions or disruptions in our service;
•develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased usage, as well as the deployment of new features and services;
•hire, integrate and retain talented technology, marketing, customer service and other personnel;
•effectively manage rapid growth in our personnel and operations; and
•effectively manage our costs.

If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above as well as those described elsewhere in this “Risk Factors” section, our business, financial condition and operating results could be materially adversely affected.

We may experience significant fluctuations in our operating results and key business metrics, which make it difficult to forecast future results and could cause our stock price to decline.

Our operating results and key business metrics may vary significantly and are not necessarily an indication of future performance. We experience seasonal fluctuations in key business metrics such as bookings and GBV, our operating results, including revenue, marketing and operations and support expenses, and net income (loss), and Adjusted EBITDA, which we expect to continue and which may become more extreme. Over the course of the year, we historically experience seasonally high bookings during the third quarter, which then step down slightly during the fourth quarter, and then stay approximately flat during the first quarter before ramping again in the second quarter. We usually experience stronger bookings, particularly for overnight boarding, house sitting, and drop-in services for cats, 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 and holiday travel, respectively. Bookings, GBV and revenue can also be impacted by the timing of holidays and other events.

Our operating results may fluctuate as a result of a variety of other factors, some of which are beyond our control such as macroeconomic and geopolitical trends and the impacts resulting from the COVID-19 pandemic and non-COVID illnesses. Moreover, we base our expense levels and investment plans on estimates for revenue that may turn out to be inaccurate and we may not be able to adjust our spending quickly enough if our revenue is less than expected, resulting in losses that exceed our expectations. If our assumptions regarding the risks and uncertainties that we use to plan our business are incorrect or change, or if we do not address these risks successfully, our operating results could differ materially from our expectations and our business, operating results and financial condition could be materially adversely affected. Investors should not rely on our operating results for any previous period as any indication of operating results or growth in future periods.

We base our decisions regarding expenditures in new pet parent acquisition in part on our analysis of the GBV generated from pet parents that we acquired in prior periods. Our estimates and assumptions may not accurately reflect future results and we may not be able to recover pet parent acquisition costs.

Our success depends on our ability to attract pet parents in a cost-effective manner. Our decisions regarding investments in pet parent acquisition substantially depend upon our analysis of the revenue generated from pet parents acquired in earlier periods. Our analysis regarding pet parent acquisition investment and revenue includes several assumptions. For example:
•We make various assumptions based on our historical data with respect to the rebooking rates of pet parents.
•While we believe the trends reflected by our various pet parent cohorts are illustrative of our pet parent base, the results of particular cohorts inherently reflect a distinct group of pet parents and may not be representative of our current or future composite group of pet parents or other monthly cohorts during a given year, particularly as we grow, our pet parent base broadens and we expand to new local markets.
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•Our analysis focuses on support and acquisition marketing expenses incurred during the period in which the pet parents were originally acquired and makes various assumptions with respect to the level of additional marketing or other expenses necessary to maintain pet parent loyalty and generate booking activity in subsequent periods.

If our assumptions regarding our pet parent cohort behaviors, acquisition investment and resulting revenue from bookings, including those relating to the effectiveness of our marketing expenditures, prove incorrect, our ability to generate revenue from our investments in new pet parent acquisitions may be less than we have assumed and less than we have experienced in the past. As a result, we may need to adjust expenses or otherwise alter our strategy and our business, financial condition and operating results may be materially adversely affected.

If the use of our platform in large metropolitan areas is negatively affected, our financial results and future prospects could be adversely impacted.

We derive a significant portion of our bookings and historically have generated a significant portion of our growth in more densely populated urban areas. Our business and financial results may be susceptible to economic, social and regulatory conditions or other circumstances that tend to impact such areas. An economic downturn, increased competition, or regulatory obstacles in these areas could adversely affect our business, financial condition and operating results to a much greater degree than would the occurrence of such events in other areas. Further, we expect to continue to face challenges in penetrating lower-density suburban and rural areas, where our network is smaller and finding matches is more difficult, the cost of pet ownership is lower, and alternative pet care providers may be more convenient. If we are not successful in penetrating suburban and rural areas, or if we are unable to operate in certain key metropolitan areas in the future, our ability to serve what we consider to be our total addressable market would be limited and our business, financial condition and operating results would suffer.

Risks Related to Regulation and Taxation

If pet care providers are reclassified as employees under applicable law or new laws are passed causing the reclassification of pet care providers as employees or otherwise adopting employment-like restrictions with regard to pet care providers who use our platform, our business would be materially adversely affected.

We are subject to claims, lawsuits, arbitration proceedings, administrative actions, government investigations and administrative audits, and other legal and regulatory proceedings at the U.S. federal, state and municipal levels challenging the classification of pet care providers that use our platform as independent contractors. We may also become subject to similar claims and audits in Canada, the United Kingdom and Western Europe, or other international geographies where we may offer our platform in the future.

For example, representative actions, including actions under California’s Private Attorney General Act, or PAGA, have been filed against us alleging that we misclassified pet care providers in California as independent contractors in violation of the California Labor Code. In one of the actions, Melanie Sportsman v. A Place for Rover, Inc., the U.S. District Court, Northern District of California, granted our motion for summary judgment and entered judgment in our favor, but the plaintiff appealed the court’s dismissal to the United States Court of Appeals for the Ninth Circuit. We entered into a settlement agreement with the named plaintiff pursuant to which we made a total payment of $18.0 million in full and final settlement of all claims that the named plaintiff and members of a settlement class brought or could have brought in the litigation. The settlement terms do not require us to reclassify pet care providers in California as employees, and in agreeing to the settlement terms we did not admit to any wrongdoing or liability. See Part I, Item 1, Note 9—Commitments and Contingencies—Litigation and Other Contingencies for a more detailed discussion.

In addition, we are currently involved in administrative audits with state employment agencies, including audits related to pet care provider classification. For example, the Washington State Department of Labor & Industries, or L&I, opened an audit that resulted in a determination that pet care providers who use the Rover platform are “covered workers” for purposes of workers’ compensation coverage and made an assessment against us for alleged premium contributions, penalties, and interest owed for calendar year 2017. We prevailed on four successive appeals of this assessment, most recently to the Washington State Court of Appeals, which affirmed a State of Washington Board of Industrial Insurance Appeals decision that pet care providers who use the Rover platform are, at most, independent contractors. In October 2023, the Washington Supreme Court declined to grant L&I’s petition for review of the Washington State Court of Appeals decision leaving that decision intact. Previously, L&I had opened a second workers’ compensation audit covering the second quarter of 2019 through the first quarter of 2022. It remains to be seen whether this second audit will continue.

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The tests governing whether a service provider is an independent contractor or an employee vary by governing law and are typically highly fact sensitive. Laws and regulations that govern the status and classification of independent contractors are subject to changes and divergent interpretations by various authorities, which can create uncertainty and unpredictability for us. We maintain that pet care providers who use the Rover platform are our customers and, as such, are at most independent contractors, and we intend to continue to defend ourselves vigorously in these matters. Nevertheless, there can be no guarantee that our defenses will be successful in all jurisdictions, and pet care providers may be reclassified as employees, especially in light of the evolving rules and restrictions on service provider classification and their potential impact on participants in the “gig economy.” In the United States, 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 2021, the U.S. Secretary of Labor expressed his view that in some cases “gig workers should be classified as employees” and that further review was ongoing. In 2022, the United States Department of Labor, or DOL, released a proposed rule regarding the classification of employees and independent contractors under the federal Fair Labor Standards Act. The proposed rule would implement new interpretative guidance for classification of workers if and when the rule is adopted. In 2019, the California Assembly passed AB-5, which codified a narrow worker classification test that 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. While we believe that pet care providers who use the Rover platform fall within such exemption, interpretation or enforcement of the exemption varies. In addition, other jurisdictions (including in international geographies where we offer, or in the future may offer, our platform) could pursue similar laws that do not include such exemptions and which, if applied to our platform, could adversely impact our platform’s availability and our business.

The costs associated with defending, settling, or resolving pending and future lawsuits (including demands for arbitration) and governmental audits relating to the classification of pet care providers have been and may continue to be material to our business. Furthermore, costs and impacts to our business resulting from changes we may make to our platform and operations in order to ensure compliance with evolving legal frameworks may become material. For example, as a result of the Sportsman settlement agreement, we agreed to modify our platform to make certain changes applicable to pet care providers in California to bolster the classification of pet care providers who use the Rover platform as independent contractors under California law.

A reclassification of service providers as employees and claims or settlements of proceedings alleging misclassification could adversely affect our business, financial condition and operating results, including as a result of:
•monetary exposure arising from or relating to alleged failure to comply with tax withholding and payment obligations, wage and hour laws and requirements (such as those pertaining to unpaid wages and failure to pay minimum wage and overtime, to reimburse for expenses, or to provide required breaks and wage statements), including statutory and punitive damages, penalties and government fines;
•injunctions prohibiting continuance of existing business practices;
•claims for employee benefits (including equity incentives), social security, workers’ compensation and unemployment;
•claims of discrimination, harassment and retaliation under civil rights laws;
•claims under laws pertaining to unionizing, collective bargaining and other concerted activity;
•increasing our cost of doing business to a level that is unsustainable;
•other claims, charges, or proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability or agency liability; and
•harm to our reputation and brand.

In addition to the harms listed above, a reclassification of pet care providers as employees would require us to significantly alter our existing business model and operations (including by suspending, ceasing or curtailing operations in impacted jurisdictions) and impact our ability to add and retain pet care providers to our platform and grow our business, which we would expect to have an adverse effect on our business, financial condition and operating results.

Our business is subject to a variety of laws and regulations, many of which are unsettled and still developing, and failure to comply with such laws and regulations could subject us to claims or otherwise materially adversely affect our business, financial condition, or operating results.
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Online marketplaces offering pet care services are a relatively nascent business model and are rapidly evolving. We are or may become subject to a variety of laws in the United States, Canada, the United Kingdom, Western Europe, and other jurisdictions. Laws, regulations and standards governing issues such as worker classification, labor and employment, anti-discrimination, animal safety, home-based pet care licensing and regulation, online payments, gratuities, pricing and commissions, subscription services, intellectual property, background and identity verification checks, algorithm-based discrimination and tax are often complex and subject to varying interpretations, in many cases due to their lack of specificity. The scope and interpretation of these laws and whether they are applicable to us are often uncertain and may be conflicting, including varying standards and interpretations among countries, between state or province and federal law, between individual states or provinces and even at the city and municipality level. 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. We have been proactively working with state and local governments and regulatory bodies to ensure that our platform is available broadly.

Laws relating to the potential liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition, regulatory authorities in Europe and in the United States at the federal and state levels are considering a number of legislative and regulatory proposals concerning privacy and other matters that may be applicable to our business. It is also likely that if our business grows and evolves and our services are used in a greater number of geographies, we would become subject to laws and regulations in additional jurisdictions. It is difficult to predict how existing laws would be applied to our business and the new laws to which it may become subject.

In the United States, money transmission is subject to various state and federal laws and the rules and regulations are enforced by multiple authorities and governing bodies, including numerous federal, state and local agencies who may define money transmission differently. Outside of the United States, we are subject to additional laws, rules and regulations related to the provision of payments and financial services, and if we expand into new jurisdictions, the laws, regulations and regulators to which we are subject to will expand as well. Noncompliance with such regulations may subject us to fines or other penalties in one or more jurisdictions levied by federal or state or local regulators, including state Attorneys General, as well as those levied by foreign regulators. In addition to fines, penalties for failing to comply with applicable rules and regulations could include criminal and civil proceedings, forfeiture of significant assets or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny. Recent financial, political and other events may increase the level of regulatory scrutiny on larger companies, technology companies in general, and companies engaged in dealings with independent service providers or otherwise viewed as part of the “gig economy.” Legislative, regulatory, and administrative bodies may enact new laws or promulgate new regulations that are adverse to our business, or they may view matters or interpret laws and regulations differently than they have in the past or in a manner adverse to our business, including by changing employment-related laws or by enacting employment-like regulations with regard to dual-sided marketplaces like our platform. In addition, regulatory scrutiny or action may create different or conflicting obligations on us from one jurisdiction to another, which creates additional challenges to managing our business.

Our success, or perceived success, and increased visibility may also drive some businesses that perceive our business model as a threat to their services or otherwise negatively to raise their concerns to local policymakers and regulators. These businesses and their trade association groups or other organizations may take actions and employ significant resources to shape the legal and regulatory regimes in jurisdictions where we may have, or seek to have, a market presence in an effort to change such legal and regulatory regimes in ways intended to adversely affect or impede our business and the ability of pet parents and pet care providers to use our platform.

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, including any future laws or regulations that we may not be able to fully anticipate at this time, we could be materially adversely affected and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain services or platform features, which would adversely affect our business. Any failure to comply with applicable laws and regulations could also subject us to claims and other legal and regulatory proceedings (including class, collective or other representative actions), fines, or other penalties, criminal and civil proceedings, forfeiture of significant assets and other enforcement actions. In addition, the increased attention to liability issues as a result of lawsuits and legislative proposals could adversely affect our reputation or otherwise impact the growth of our business. Any costs incurred to prevent or mitigate this potential liability are also expected to adversely affect our business, financial condition and operating results.

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Government regulation of the Internet, mobile devices and e-commerce is evolving and unfavorable changes could substantially adversely affect our business, financial condition and operating results.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet, mobile devices and e-commerce that are constantly evolving. Existing and future laws and regulations, or changes thereto, may impede the growth of the Internet, mobile devices, e-commerce, or other online services and increase the cost of providing online services, require us to change our business practices, or raise compliance costs or other costs of doing business. These regulations and laws, which continue to evolve, may address taxation, tariffs, privacy, data retention and protection, data security, pricing and commissions, content, copyrights, distribution, social media marketing, advertising practices (including targeted ads and behavioral advertising), sweepstakes, mobile, electronic contracts and other communications, consumer protection, text messaging, Internet and mobile application access to our offerings and the characteristics and quality of online offerings, the provision of online payment services and the characteristics and quality of services. It is not always clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. In addition, as we continue to expand internationally, it is possible that foreign government entities may seek to censor content available on our mobile applications or website or may even attempt to block access to our mobile applications and website. Regulators and lawmakers increasingly are focused on web and mobile design practices called “dark patterns,” which they believe harm consumers by leading them to take actions they may not otherwise take, for example by obscuring or delaying presentation of additional fees during the online purchase process. This increased scrutiny has led to new laws in some states, such as California, regarding the display of prices and has led and may continue to lead to similar regulation at the federal level or in other markets where we operate. Compliance with these laws could render some of our business practices less effective or more costly to maintain, and any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation and brand, a loss in business and proceedings or actions against us by governmental entities or others, which could adversely affect our business, financial condition and operating results.

We are subject to regulatory inquiries, claims, lawsuits, investigations, various proceedings and other disputes and face potential liability and expenses for legal claims, which could materially adversely affect our business, operating results and financial condition.

We are or may become subject to claims, lawsuits, arbitration proceedings, government investigations and other legal, regulatory and administrative proceedings, including those involving pet or personal injury, death or illness, property damage, worker classification, pay model, labor and employment, unemployment insurance benefits, workers’ compensation, anti-discrimination, commercial disputes, competition, pet care provider and pet parent complaints, intellectual property disputes, compliance with regulatory requirements, data security, advertising practices, tax issues, products liability and other matters, and we may become subject to additional types of claims, lawsuits, government investigations and legal or regulatory proceedings as our business grows and as we acquire or deploy new products and services.

We have in the past been, are currently, and may in the future be the subject of regulatory and administrative investigations, audits and inquiries conducted by federal, state, or local governmental agencies. Results of investigations, audits and inquiries and related governmental action are inherently unpredictable and, as such, there is always the risk of an investigation, audit, or inquiry having a material adverse impact on our business, financial condition and operating results, particularly if an investigation, audit, or inquiry results in a lawsuit or unfavorable regulatory enforcement or other action. Regardless of outcome, these matters can have an adverse impact on us in light of the costs associated with cooperating with, or defending against, such matters and the diversion of management resources and other factors.

We are also subject to claims, lawsuits and other legal proceedings seeking to hold us vicariously liable for the actions of pets, pet parents and pet care providers. In the ordinary course of business, our Trust and Safety team receives claims pursuant to the Rover Guarantee, as well as claims and threats of legal action that arise from pet sitting services booked through the Rover website or applications. Various parties have from time to time claimed and may claim in the future, that we are liable for damages related to accidents or other incidents involving pets, pet parents, pet care providers and third parties. For example, third parties have asserted legal claims against us in connection with personal injuries related to pet or human safety issues or accidents caused by pet care providers or animals. We have incurred expenses to settle personal injury claims, which we sometimes choose to settle for reasons including implementation of the Rover Guarantee, customer goodwill, expediency, protection of our reputation and to prevent the uncertainty of litigating. We expect that such expenses will continue to increase as our business grows and faces increasing public scrutiny. Pending or threatened legal proceedings could have a material adverse impact on our business, financial condition, or operating results. Regardless of the outcome of any legal proceeding, any injuries to, or deaths of, any pet parents, pet care providers, animals, or third parties could result in negative publicity and harm to our brand, reputation, business, financial condition and operating results.

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We face potential liability and expense for claims relating to the information that we publish on our website and mobile applications, including claims for trademark and copyright infringement, defamation, libel and negligence, among others. Our platform also relies upon content that is created and posted by pet care providers, pet parents, or other third parties. Claims of defamation, disparagement, negligence, warranty, personal harm, intellectual property infringement, or other alleged damages could be asserted against us, in addition to pet care providers and pet parents. While we rely on a variety of statutory and common-law frameworks and defenses, including those provided by the Digital Millennium Copyright Act, the Communications Decency Act, or CDA, the fair-use doctrine in the United States and the E-Commerce Directive in the European Union, differences between statutes, limitations on immunity, requirements to maintain immunity and moderation efforts in the many jurisdictions in which we operate may affect our ability to rely on these frameworks and defenses, or create uncertainty regarding liability for information or content uploaded by pet care providers and pet parents or otherwise contributed by third-parties to our platform. Moreover, regulators in the United States and in other countries may introduce new regulatory regimes, such as a potential repeal or amendment of CDA Section 230, that increase potential liability for information or content available on our platform. For example, in the United States, laws such as the CDA, which have previously been interpreted to provide substantial protection to interactive computer service providers, may change and become less predictable or unfavorable by legislative action or juridical interpretation. There have been various federal legislative efforts to restrict the scope of the protections available to online platforms under the CDA, in particular with regards to Section 230 of the CDA, and current protections from liability for third-party content in the United States could decrease or change. We could incur significant costs investigating and defending such claims and, if we are found liable, significant damages.

The results of any such claims, lawsuits, arbitration proceedings, government investigations, or other legal or regulatory proceedings cannot be predicted with any degree of certainty. Any claims against us, whether meritorious or not, could be time-consuming, result in costly litigation, be harmful to our reputation, require significant management attention and divert significant resources. Determining reserves for our pending litigation is a complex and fact-intensive process that requires significant subjective judgment and speculation. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties that could adversely affect our business, financial condition and operating results. These proceedings could also result in harm to our reputation and brand, sanctions, consent decrees, injunctions, or other orders requiring a change in our business practices. Further, under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of our business and commercial partners and current and former directors and officers.

Our use of arbitration and class action waiver provisions subjects us to reputational risks and may not be enforceable, which could increase our litigation costs and adversely affect our business, financial condition and operating results.

We include arbitration and class action waiver provisions in our terms of service with the pet parents and pet care providers that use our platform. These provisions are intended to streamline the litigation process for all parties involved, as they can in some cases be faster and less costly than litigating disputes in state or federal court. However, the use of arbitration and class action waiver provisions subjects us to certain risks to our reputation and brand, as these provisions have been the subject of increasing public scrutiny. In addition, individual arbitrations can be costly, and certain litigation tactics embraced by plaintiff’s lawyers, such as filing mass arbitration requests, can undermine the cost effectiveness of arbitration. Frequent reliance on arbitration provisions could also subject us to mass arbitration actions. In order to minimize these risks, we may choose to limit our use of arbitration and class action waiver provisions or be required to do so in a legal or regulatory proceeding, either of which could cause an increase in our litigation costs and exposure. Additionally, we permit certain users of our platform to opt out of such provisions, which could also cause an increase in our litigation costs and exposure.

Further, with the potential for conflicting rules regarding the scope and enforceability of arbitration and class action waivers on a state-by-state basis, as well as between state, federal and international law, there is a risk that some or all of our arbitration and class action waiver provisions could be subject to challenge or may need to be revised to exempt certain categories of protection. If these provisions were found to be unenforceable, in whole or in part, or specific claims are required to be exempted, we could experience an increase in our costs to litigate disputes and the time involved in resolving such disputes and we could face increased exposure to potentially costly lawsuits, each of which could adversely affect our business, financial condition and operating results.

We are subject to governmental economic and trade sanctions laws and regulations which could result in liability and negatively affect our business, operating results and financial condition.

We are required to comply with economic and trade sanctions and export controls administered by governments where we operate, including the U.S. government (including without limitation regulations administered and enforced by the U.S. Office
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of Foreign Assets Control, or OFAC, and the U.S. Department of Commerce), the Council of the European Union and the Office of Financial Sanctions Implementation of His Majesty’s Treasury in the United Kingdom, or OFSI. These economic and trade sanctions prohibit or restrict transactions to or from or dealings with certain specified countries, regions, their governments and, in certain circumstances, their nationals and with individuals and entities that are specially-designated, such as individuals and entities included on OFAC’s List of Specially Designated Nationals, or SDN List), subject to EU/UK asset freezes, or other sanctions measures. For example, as a result of Russia’s military action in Ukraine, governmental authorities in the United States, the European Union, and the United Kingdom, among others, launched an expansion of coordinated sanctions and export control measures, including sanctions against certain individuals and entities and prohibiting or limiting certain financial and commercial transactions. Any future economic and trade sanctions imposed in jurisdictions where we have significant business could materially adversely impact our business, operating results and financial condition.

Our ability to track and verify transactions and otherwise to comply with these regulations requires a high level of internal controls. We maintain policies and procedures to implement these internal controls, which we periodically assess and update to the extent we identify compliance gaps. Our internal policies and procedures require that we report to OFAC on payments we have rejected or blocked pursuant to OFAC sanctions regulations and on any possible violations of those regulations. Our policies also require that we report to OFSI on dealings with persons subject to EU/UK sanctions. There is a risk that, despite the internal controls that we have in place, we may have inadvertently engaged in or could in the future engage in dealings with persons sanctioned under applicable sanctions laws and that our internal controls could be less than fully effective at implementing the new and any possible future sanctions that relate to Russia’s military action in Ukraine. Any non-compliance with economic and trade sanctions laws and regulations or related investigations could result in claims or actions against us and materially adversely affect our business, operating results and financial condition.

We are subject to various U.S. and international anti-corruption laws and other anti-bribery and anti-kickback laws and regulations.

We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, and other anti-corruption, anti-bribery and anti-money laundering laws in the jurisdictions in which we do business, both domestic and abroad. These laws generally prohibit us and our employees from improperly influencing government officials or commercial parties in order to obtain or retain business, direct business to any person, or gain any improper advantage. The FCPA and other applicable anti-bribery and anti-corruption laws also may hold us liable for acts of corruption and bribery committed by our third-party business partners, representatives and agents who are acting on our behalf. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries and our employees, representatives, contractors and agents, even if it does not explicitly authorize such activities.

These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot assure that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible and our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions. Any violation of the FCPA or other applicable anti-bribery, anti-corruption and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, substantial diversion of management’s attention, a drop in our stock price, or overall adverse consequences to our business, all of which may have an adverse effect on our reputation, business, financial condition and operating results.

Taxing authorities may successfully assert that we have not properly collected, or in the future should collect, sales and use, gross receipts, value-added, or similar taxes and may successfully impose additional obligations on us and any such assessments, obligations, or inaccuracies could adversely affect our business, financial condition and operating results.

The application of non-income, or indirect, taxes, such as sales and use tax, value-added tax, goods and services tax, business tax and gross receipt tax, to businesses like ours is a complex and evolving issue. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and e-commerce. Significant judgment is required on an ongoing basis to evaluate applicable tax obligations and as a result, amounts recorded are estimates and are subject to adjustments. In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business.
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In addition, governments are increasingly looking for ways to increase revenue, which has resulted in discussions about tax reform and other legislative action to increase tax revenue, including through indirect taxes. Such taxes could adversely affect our business, financial condition and operating results.

We are subject to indirect taxes, such as payroll, sales and use, value-added and goods and services taxes, and we may face various indirect tax audits in various U.S. and foreign jurisdictions. We believe that we remit indirect taxes in all relevant jurisdictions in which we generate taxable sales, based on our understanding of the applicable laws in those jurisdictions. However, tax authorities may raise questions about, or challenge or disagree with, our calculation, reporting, or collection of taxes and may require us to collect taxes in jurisdictions in which we do not currently do so or to remit additional taxes and interest and could impose associated penalties and fees. A successful assertion by one or more tax authorities requiring us to collect taxes in jurisdictions in which we do not currently do so or to collect additional taxes in a jurisdiction in which we currently do so, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest, could discourage pet parents and pet care providers from utilizing our offerings, or could otherwise harm our business, financial condition and operating results. Further, even where we are collecting taxes and remitting them to the appropriate authorities, we may fail to accurately calculate, collect, report and remit such taxes. Additionally, where we or pet care providers try to pass along increased additional taxes and raise fees or prices to pet parents, booking volume may decline.

As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may adversely affect our operating results in future periods in which we change our estimate of tax obligations or in which the ultimate tax outcome is determined.

We may have exposure to greater than anticipated tax liabilities.

We are subject to income taxes in the United States and certain foreign jurisdictions. Our effective tax rate could be materially adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses and the valuation of deferred tax assets. Increases in our effective tax rate would reduce profitability or increase losses. As we expand the scale of our international business activities, any changes to U.S. or international taxation of such activities may substantially increase our worldwide effective tax rate, lead to volatility with respect to tax expenses and liabilities from period to period, and materially adversely affect our business, financial condition and operating results. For example, beginning in 2022, the Tax Cuts and Jobs Act eliminates the option to deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such expenditures over five or fifteen years, as applicable, pursuant to Section 174 of the Internal Revenue Code of 1986, as amended, or the Code. If the requirement to capitalize Code Section 174 expenditures is not modified, it may significantly impact our effective tax rate and cash tax liability to the extent we do not have sufficient Federal or state net operating losses and credit carryforwards, or to the extent our utilization of net operating loss carryforwards is limited. Further, the Inflation Reduction Act imposes a 1% excise tax on certain stock buybacks by publicly traded corporations, which will increase the costs associated with our stock repurchase program.

The Organization for Economic Co-operation and Development, or OECD, and its member countries which includes the United States, have been focused for an extended period on issues related to the taxation of multinational corporations, such as the comprehensive plan set forth by the OECD to create an agreed set of international tax rules for preventing base erosion and profit shifting. The current framework for overhauling the taxation of multinational corporations includes, among other things, profit reallocation rules and a 15% global minimum corporate income tax rate. Similarly, the European Commission and several countries have issued proposals that would change various aspects of the current framework under which we are taxed. These proposals include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income (including indirect) taxes, including taxes based on a percentage of revenue.

We have been subject to examination and may be subject to examination in the future, by federal, state, local and foreign tax authorities on income, employment, sales and other tax matters. For example, our eligibility to receive the employee retention credit remains subject to audit by the IRS for a period of five years. See Part I, Item 1, Note 7—Balance Sheet Components for more information. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority, such as if the IRS determines that we were not eligible to receive a portion or all of the ERC and we are required to return a portion or all of the ERC to the IRS, would not have an adverse effect on our business, financial condition and operating results.

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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited, which could adversely impact our financial condition and operating results.

As of December 31, 2022, we had accumulated approximately $253.5 million, $135.6 million and $5.2 million of gross federal, state and non-U.S. net operating loss carryforwards, or NOLs, respectively. These NOLs are available to reduce future taxable income with approximately $74.1 million of gross federal NOLs beginning to expire in 2031 and gross state NOLs beginning to expire in 2028. Under the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or the Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, NOLs from taxable years that began after December 31, 2017 may offset no more than 80% of current year taxable income for taxable years beginning after December 31, 2020. NOLs arising in taxable years ending after December 31, 2017 can be carried forward indefinitely, but NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and 20-year carryforward period. It is possible that we will not generate sufficient taxable income in time to use some or all NOLs before their expiration.

Under Section 382 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs to offset its post-change taxable income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5 percent stockholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We have completed an analysis to determine whether we experienced a change in control within the meaning of Section 382 of the Code covering the period from inception through December 31, 2022. Based on our analysis, we concluded the identified ownership changes will not materially limit the net operating loss and research and development credits available to offset our tax liabilities. In the event we experience one or more ownership changes as a result of future stock transactions, our ability to use NOLs to reduce future taxable income and liabilities may be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the future.

There is also a risk that our existing NOLs or tax credits could expire or otherwise be unavailable to offset future income tax liabilities, either as the result of regulatory changes issued, possibly with retroactive effect, by various jurisdictions seeking to raise revenue, or for other unforeseen reasons.

We record, and may in the future record, significant valuation allowances on our deferred tax assets, and the recording and release of such allowances may have a material impact on our results of operations.

The need for a valuation allowance requires an assessment of both positive and negative evidence on a jurisdiction-by-jurisdiction basis when determining whether it is more-likely-than-not that deferred tax assets are recoverable. In making such an assessment, significant weight is given to evidence that can be objectively verified. New facts and circumstances, historic profits or losses, and future financial results may require us to reevaluate our valuation allowance positions which could potentially affect our effective tax rate.

We continue to monitor the likelihood that we will be able to recover our deferred tax assets, including those for which a valuation allowance is recorded. There can be no assurance that we will generate profits in future periods enabling us to fully realize our deferred tax assets. We have recorded a valuation allowance on U.S. deferred tax assets, including Federal and state net operating loss and credit carryforwards, to the extent they are not realizable by utilizing deferred tax liabilities as sources of income. We intend to maintain the valuation allowance until there is sufficient evidence to support its reversal. The timing of recording a valuation allowance or the reversal of such valuation allowance is subject to objective factors that cannot be readily predicted in advance. Both the establishment of a valuation allowance and the reversal of a previously recorded valuation allowance may have a material impact on our financial results.

We expect to use a significant amount of cash to satisfy tax withholding obligations in connection with RSU vesting.

We must remit cash to relevant taxing authorities to satisfy obligations in respect to income taxes and social security contributions related to employee RSU vesting. Through 2022, we funded these obligations through “sell-to-cover” transactions, where shares with a market value equivalent to the tax withholding obligation were sold into the market. Beginning in 2023, we adopted a policy to use cash on our balance sheet to satisfy these obligations and withhold shares with a corresponding value from employees. Although this policy reduces stockholder dilution compared to “sell-to-cover” transactions, it does represent a significant use of cash and may adversely affect our financial condition. See “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Resources.”

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We currently, and may in the future, have assets held at financial institutions that exceed the insurance coverage offered by the Federal Deposit Insurance Corporation, the loss of which could have a severe negative affect on our operations and liquidity.

We, along with two of our subsidiaries, currently have a portion of our cash and cash equivalents held in operating and cash sweep accounts at First-Citizens Bank & Trust Company, or First Citizens Bank (f/k/a Silicon Valley Bridge Bank, N.A., or SVBB). On March 10, 2023, Silicon Valley Bank, or SVB, a predecessor to SVBB and now a division of First Citizens Bank, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or FDIC, as receiver. On March 13, 2023, the FDIC, the Federal Reserve and the Department of the Treasury announced that all assets held at SVB would be available to all customers commencing March 13, 2023. As of September 30, 2023, we had approximately $0.5 million on deposit with First Citizens Bank, which represented approximately 0.2% of our cash and cash equivalents as of September 30, 2023 and is considered immaterial to our liquidity. One of the deposit accounts at First Citizens Bank has an immaterial amount in excess of the insurance coverage offered by the FDIC, and we believe that the amounts in the cash sweep accounts at First Citizens Bank continue to be our assets and not the assets of First Citizens Bank. We are in the process of withdrawing our remaining assets from First Citizens Bank and moving such assets to be deposited in accounts at JPMorgan Chase and, to diversify further, potentially another financial institution of high credit quality.

In the future, we may maintain our cash assets at financial institutions in the U.S. in amounts that are in excess of the FDIC insurance limit of $250,000. There can be no assurance that any deposits in excess of the FDIC insurance limit will be backstopped by the U.S. Government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis. In the event of a failure of any of these financial institutions where we maintain our deposits or other assets or a liquidity crisis, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations, or we may experience delays in accessing our accounts which could materially impact our ability to pay operational expenses or make other payments.

Risks Related to Privacy and Technology

We have been subject to cybersecurity attacks in the past and anticipate being the target of future attacks. Any actual or perceived breach of security or security incident or privacy or data protection breach or violation could interrupt our operations, harm our brand and reputation and adversely affect our business, financial condition and operating results.

Our business involves the collection, storage, processing and transmission of personal data and other sensitive and proprietary data of pet parents and pet care providers. Additionally, we maintain, and third-party service providers on our behalf maintain, sensitive and proprietary information relating to our business, such as our own proprietary information, other confidential information and personal data relating to individuals such as our employees. An increasing number of organizations, including those with significant online operations, have disclosed breaches of their systems and other information security incidents, some of which have involved sophisticated and highly targeted attacks. We, and our third-party service providers, have experienced and may in the future experience such attacks. In addition, these incidents can originate on our vendors’ systems, which can then be leveraged to access our systems, further preventing our ability to successfully identify and mitigate the attack.

The risks associated with a malicious insider compromising our information systems and infrastructure have grown in light of the greater adoption of remote work as a response to the COVID-19 pandemic. We also have a distributed community support organization including third-party providers that have access to personal data. Other companies have suffered incidents involving such insiders exfiltrating the personal data of customers, stealing corporate trade secrets and key financial metrics, and illegally diverting funds. No series of measures can fully safeguard against a sufficiently determined and skilled insider threat.

Because techniques used to obtain unauthorized access to or to sabotage information systems change frequently and may not be known until launched against us, we may be unable to anticipate or prevent these attacks, react in a timely manner, or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other privacy-, data protection- and security-related incidents. In addition, users on our platform could have vulnerabilities on their own devices that are unrelated to our systems and platform but could mistakenly be attributed to us. Further, breaches experienced by other companies may also be leveraged against us. For example, credential stuffing attacks, which involve the automated injection of stolen username and password pairs into login forms in order to fraudulently gain access to user accounts, are increasingly common and sophisticated actors can mask their attacks, making them difficult to
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identify and prevent. Bad actors using stolen credentials have directly targeted and may continue to directly target users of our platform with attempts to breach their Rover accounts, which have and can result in takeovers of their accounts for the purpose of perpetrating fraud against them, other users, or our platform. Users of our platform have experienced, and may continue to experience, incidents of fraud on our platform involving credential stuffing attacks and account takeovers, which we may not be able to detect or prevent. Victims of such takeovers may seek recovery from us or we may offer reimbursement of funds lost through fraud, and we have incurred and may continue to incur losses from claims by pet parents and pet care providers, which losses may be substantial. The ability of bad actors to cause an account takeover exposes us to financial fraud risk, including costly litigation, which is difficult to fully mitigate. We have taken and continue to take measures to detect and prevent or mitigate account takeovers and fraud, but these measures need to be continually improved and may add friction to our booking process, which could adversely impact bookings. These measures may also not be effective against fraud and illegal activities, particularly given new and continually evolving forms of circumvention. If these measures do not succeed in reducing fraud, our business, results of operations, and financial condition could be materially adversely affected.

Although we have developed systems and processes that are designed to protect data of pet parents and pet care providers that use our platform, protect our systems and the proprietary, sensitive and confidential information we maintain, prevent data loss, and prevent other security breaches and security incidents, these security measures have not fully protected against such matters in the past and cannot guarantee security in the future, especially as attackers use AI and machine learning to launch more automated, targeted and coordinated attacks against targets. The IT and infrastructure used in our business may be vulnerable to cyberattacks or security breaches, and data, including personal data and other sensitive and proprietary data of pet parents and pet care providers, our employees’ personal data, or our other sensitive, confidential or proprietary data that our IT and infrastructure maintain or that otherwise is accessible through those systems may be rendered unavailable or subject to loss, compromise, or unauthorized use, disclosure, or other processing. Employee error, malfeasance, or other errors in the storage, use, or transmission of any of these types of data could result in an actual or perceived privacy, data protection, or security breach or other security incident. We also face the risk of computer viruses, ransomware, or other malware being introduced to such IT and infrastructure. Although we have policies and practices restricting access to the personal data we store, there is a risk that these policies may not be effective in all cases.

Any actual or perceived breach of privacy or data protection, or any actual or perceived security breach or other incident that impacts our platform or systems, other IT and infrastructure used in our business, or data maintained or processed in our business, could interrupt our operations, result in our platform being unavailable, result in loss or unavailability of, or improper access to, or acquisition, disclosure, or other processing of, data, result in fraudulent transfer of funds, harm our reputation, brand and competitive position, damage our relationships with third-party partners, result in significant claims, litigation, regulatory investigations and proceedings (including ongoing monitoring by regulators), fines, penalties, and increased credit card processing fees and other costs and liabilities, or result in the loss of pet parents’ and pet care providers’ confidence in, or decreased use of, our platform, any of which could adversely affect our business, financial condition and operating results. Any actual or perceived breach of privacy, data protection or security, or other security incident, impacting any entities with which we share or disclose data (including, for example, our third-party technology providers) could have similar effects. Further, any cyberattacks or actual or perceived security, privacy or data protection breaches and other incidents directed at, or suffered by, our competitors could reduce confidence in our industry and, as a result, reduce confidence in us.

We have incurred and will continue to incur significant costs in an effort to detect and prevent privacy, data protection and security breaches and other privacy-, data protection- and security-related incidents, and we may face increased costs and requirements to expend substantial resources if an actual or perceived privacy, data protection, or security breach or other incident occurs. While we maintain cyber insurance that may help provide coverage for these types of incidents, our insurance may not adequately cover costs and liabilities related to any incidents, and may not continue to be available to us on economically reasonable terms, or at all, and any insurer may deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business, reputation, results of operations and financial condition.

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.

We receive, transmit and store a large volume of personal information and other data relating to users on our platform, as well as personal information and other data relating to individuals such as our employees. Numerous local, municipal, state, federal and international laws and regulations address privacy and the collection, storing, sharing, use, disclosure and protection of
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certain types of data, including the California Online Privacy Protection Act, Canada’s 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 ePrivacy Directive, the EU General Data Protection Regulation, or GDPR, the Telephone Consumer Protection Act, or the TCPA, and similar state laws, the Gramm-Leach-Bliley Act and other federal or state laws applicable to insurance producers, the Washington Biometric Law and similar state laws, Section 5 of the Federal Trade Commission Act, the California Consumer Privacy Act, or CCPA, the California Privacy Rights Act, or CPRA, and similar laws in other states. For example, the TCPA and its state counterparts restrict certain telemarketing activities, including the use of automated SMS text messages without proper consent. This has resulted, and may in the future result, in civil claims against us. We could also face regulatory enforcement by federal and state agencies. These laws, rules and regulations evolve frequently and their scope may continually change, through new legislation, amendments to existing legislation and changes in enforcement and may be inconsistent from one jurisdiction to another.

For example, the GDPR, which became effective on May 25, 2018, has resulted and will continue to result in significant compliance burdens and costs for companies like ours. The GDPR regulates our collection, use, and other processing of personal data of European Union residents, referred to as personal data, and imposes stringent data protection requirements with significant penalties and the risk of civil litigation, for noncompliance. Failure to comply with the GDPR may result in fines of up to 20 million Euros or up to 4% of annual global revenue, whichever is greater. It may also lead to civil litigation, with the risks of damages or injunctive relief, or regulatory orders adversely impacting the ways in which our business can use personal data.

In addition, the United Kingdom has implemented legislation similar to the GDPR, referred to as the UK GDPR, which provides for fines of up to the greater of 17.5 million British Pounds and 4% of global turnover. Particularly as the United Kingdom undertakes to reform the UK GDPR, the relationship between the United Kingdom and the EU in relation to certain aspects of data protection law remains unclear, and these changes will lead to additional costs and increase our risk exposure. On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, providing some relief regarding the legality of continued personal data flows from the European Economic Area, or EEA, to the United Kingdom. Uncertainty remains, as this adequacy determination must be renewed after four years and may be modified or revoked in the interim. The United Kingdom’s previous statements about its intent to replace the UK GDPR cast the adequacy determination further into doubt.

Additionally, we are or may become subject to laws, rules and regulations regarding cross-border transfers of personal data, including those relating to transfer of personal data outside the EEA, Switzerland, and the United Kingdom. Ongoing legal developments have created complexity and uncertainty regarding transfers of personal data from these regions to the United States and other jurisdictions. For example, on July 16, 2020, the Court of Justice of the European Union, or CJEU, invalidated the EU-U.S. Privacy Shield Framework, or the Privacy Shield, under which personal data could be transferred from the EEA to U.S. entities that had self-certified under the Privacy Shield scheme. Although the European Commission recently adopted its adequacy decision for the new EU-U.S. Privacy Shield Framework, it may be challenged and invalidated again. While the CJEU previously upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism), it noted that reliance on them may not necessarily be sufficient in all circumstances. In addition to other mechanisms (particularly standard contractual clauses), in limited circumstances we may rely on Privacy Shield certifications of third parties (for example, vendors and partners). Continually evolving requirements, such as modifications to the standard contractual clauses by the European Commission or the United Kingdom’s Information Commissioner’s Office, have created uncertainty and increased the risk around our international operations. We may, in addition to other impacts, be required to review and amend the legal mechanisms by which we make or receive personal data transfers to the United States and other jurisdictions, to engage in new contract negotiations with third parties that aid in processing personal data on our behalf or localize certain personal data, to localize certain personal data, and to incur additional costs associated with increased compliance burdens.

As the enforcement landscape further develops, we could suffer additional costs, complaints and/or regulatory investigations or fines, have to stop using certain tools and vendors, and make other operational changes. If we are unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could materially adversely affect our business, results of operations and financial condition.

The CCPA, as amended by the CPRA, among other things, requires covered companies to provide disclosures to California consumers and affords such consumers abilities to opt out of certain sharing and sales of personal information, including through user-enabled global privacy controls. The law also prohibits covered businesses from discriminating against consumers for exercising their CCPA rights. The CCPA imposes severe statutory damages as well as a private right of action for certain
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data breaches. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. 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. In addition, other states have enacted and likely will continue to enact data privacy laws that may apply to us. For instance, the Virginia Consumer Data Protection Act took effect on January 1, 2023, the Colorado Privacy Act and the Connecticut Data Privacy Act took effect July 1, 2023, and the Utah Consumer Privacy Act becomes effective on December 31, 2023. These laws have certain similarities, but include their own compliance requirements.

Aspects of the interpretation and enforcement of these laws remain uncertain. Comprehensive privacy laws have also been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States, with potentially greater penalties and more rigorous compliance requirements relevant to our business. The effects of such laws are significant and may require us to modify our data processing practices and policies and incur substantial compliance-related costs and expenses. Additionally, many laws and regulations relating to privacy and the collection, storing, sharing, use, disclosure, protection, and other processing of certain types of data are subject to varying degrees of enforcement and new and changing interpretations by courts. For example, we have received and may continue to receive claims regarding our use of third-party pixels under laws such as the California Invasion of Privacy Act, which could lead to costly litigation. Current or new laws or regulations, or evolving interpretations of their requirements, may require significant changes to our operations, our security measures and infrastructure, and our platform, or prevent us from providing our platform in jurisdictions in which we currently operate and in which we may operate in the future.

Additionally, we have incurred and may continue to incur significant expenses in an effort to comply with privacy, data protection and information security standards and protocols imposed by law, regulation, industry standards, or contractual obligations. For example, certain laws regulate the use of cookies and other tracking technologies, which limit the effectiveness of our marketing activities, impact our search engine rankings, divert technology personnel resources, increase costs, and subject us to additional liabilities. Furthermore, publication of our privacy statement and other policies regarding privacy, data protection and data security may subject us to investigation or enforcement actions by regulators if those statements or policies are found to be deficient, lacking transparency, deceptive, unfair, or misrepresentative of our practices. We are also bound by contractual obligations related to privacy, data protection and data security and our efforts to comply with such obligations may not be successful or may have other negative consequences. In particular, with such laws and regulations imposing new and relatively burdensome obligations and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so.

Despite our efforts to comply, it is possible that our interpretations of the law, practices, or platform could be inconsistent with, or fail or be alleged to fail to meet all requirements of, applicable laws, regulations, or obligations. Our failure, or the failure by our third-party providers, pet parents, or pet care providers on our platform, or consequences associated with our efforts to comply with applicable laws or regulations or any other obligations relating to privacy, data protection, or information security, or any compromise of security that results in unauthorized access to, or use or release of data relating to pet care providers, pet parents or other individuals, or the perception that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing pet care providers and pet parents from using our platform, or result in fines or other penalties, investigations, or proceedings by governmental agencies and private claims and litigation, any of which could adversely affect our business, financial condition and operating results. Even if not subject to legal challenge, the perception of concerns relating to privacy, data protection, or information security, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and operating results.

Systems defects and failures and resulting interruptions in the availability of our website, mobile applications, or platform could adversely affect our business, financial condition and operating results.

Our success depends on pet parents and pet care providers being able to access our platform at any time. Our systems, or those of third parties upon which we rely, may experience service interruptions or degradation or other performance problems because of hardware and software defects, bugs or malfunctions, distributed denial-of-service and other cyberattacks, infrastructure changes, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware, or other events. Our systems also may be subject to break-ins, sabotage, theft and intentional acts of vandalism, including by our own employees. Some of our systems are not fully redundant and our disaster recovery planning may not be sufficient for all eventualities. Our business interruption insurance may not be sufficient to cover all of our losses that may result from interruptions in our service as a result of systems failures and similar events.

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We have experienced and will likely continue to experience system failures and other events or conditions from time to time that interrupt the availability or reduce or affect the speed or functionality of our platform. Minor interruptions can result in new pet parent acquisition losses that are never recovered. Affected users could seek monetary recourse from us for their losses and such claims, even if unsuccessful, would likely be time-consuming and costly for us to address. Further, in some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Any failure to maintain performance, reliability, speed, security, and availability of our platform, services, and technical infrastructure to the satisfaction of pet parents and pet care providers may harm our business and reputation and our ability to retain existing, and attract new, pet parents and pet care providers.

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 currently rely on Amazon Web Services, or AWS, to host our platform and support our operations. We do not have control over the operations of the facilities of AWS that we use. The facilities of AWS are vulnerable to damage or interruption from natural disasters, extreme heat or cold spells or other adverse weather events, cybersecurity attacks, terrorist attacks, power outages and similar events or acts of misconduct. Our platform’s continuing and uninterrupted performance is critical to our success. We have experienced, and expect that in the future we will experience, interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. In addition, any changes in AWS’ service levels may adversely affect our ability to meet the requirements of users on our platform.

As our platform’s continuing and uninterrupted performance is critical to our success, sustained or repeated system failures would reduce the attractiveness of our platform. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times, as we expand the usage of our platform. Any of the above circumstances or events may harm our reputation and brand, reduce the availability or usage of our platform, lead to a significant short-term loss of revenue, increase our costs and impair our ability to attract new users, any of which could adversely affect our business, financial condition and operating results.

We rely on third-party payment service providers to process payments on our platform. If these third-party payment service providers become unavailable or insolvent, are subject to cybersecurity attacks, or we are subject to increased fees, our business, operating results and financial condition could be materially adversely affected.

We rely on several third-party payment service providers, including payment card networks, banks, payment processors and payment gateways, to link us to payment card and bank clearing networks to process payments made by pet parents and payments made to pet care providers through our platform. We also rely on these third-party providers to address our compliance with various laws, including money transmission regulations. For example, we rely on a sole credit card processor for payments by pet parents, and they are also the primary payment processor for pet care provider payments. If this provider or our other third-party payment service providers fail to perform adequately, become unwilling or unable to provide these services to us on acceptable terms, fail to transmit payments owed to us or pet care providers in a timely manner or at all, become insolvent or enter bankruptcy, suffer successful cybersecurity attacks, or regulators take action against them or us, our business may be substantially disrupted and pet parents’ ability to make payments and pet care providers’ ability to receive payments will be negatively impacted. In such case, we would need to find an alternate payment service provider and we may not be able to secure similar terms or replace such payment service provider in an acceptable time frame. If we need to migrate to alternative or integrate additional third-party payment service providers for any reason, the transition or addition would require significant time and management resources, may not be as effective, efficient, or well-received by pet care providers and pet parents or adequately address regulatory requirements, and could adversely impact our bookings, GBV, revenue, cash flows and liquidity. Any of the foregoing risks related to third-party payment service providers, including with regard to compliance with money transmission rules in any jurisdiction in which we operate, could cause us to incur significant losses and, in certain cases, require us to make payments to pet care providers out of our funds, which could materially adversely affect our business, operating results and financial condition.

In addition, the software and services provided by our third-party payment service providers may fail to meet our expectations, contain errors or vulnerabilities, be compromised, and have and may continue to experience outages or delays. Any of these risks could cause, and have caused, us to lose our ability to accept online payments or other payment transactions or facilitate timely payments to pet care providers on our platform, which could make our platform less convenient and desirable to
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customers and adversely affect our ability to attract and retain pet care providers and pet parents. Compromise of, or default by, a third party payment provider also could result in loss of funds by Rover or by pet care providers.

Increased fees charged by third-party payment service providers and their ability to hold our cash as a reserve or suspend processing activities could materially adversely affect our business, operating results and financial condition.

For certain payment methods, including credit and debit cards, we pay interchange and other fees and such fees result in significant costs. Payment card network costs have increased and may continue to increase in the future the interchange fees and assessments that they charge for each transaction that accesses their networks and may impose special fees or assessments on any such transaction. Our payment card processors have the right to pass any increases in interchange fees and assessments on to us. Credit card transactions result in higher fees to us than transactions made through debit cards. We also face a risk of increased transaction fees and other fines and penalties if we fail to comply with payment card industry security standards. Any material increase in interchange fees in the United States or other geographies, including as a result of changes in interchange fee limitations imposed by law in some geographies, or other network fees or assessments, or an increased use of credit cards could increase our operating costs and materially adversely affect our business, operating results and financial condition.

Moreover, our agreements with payment service providers may allow these companies, under certain conditions, to hold an amount of our cash as a reserve. They may be entitled to a reserve or suspension of processing services upon the occurrence of specified events, including material adverse changes in our business, operating results and financial condition. An imposition of a reserve or suspension of processing services by one or more of our processing companies could have a material adverse effect on our business, operating results and financial condition.

We rely on third parties to provide some of the software or features for our platform and depend on the interoperability of our platform across third-party applications and services. If these third parties were to interfere with the distribution of our platform or with our use of their software, our business would be materially adversely affected.

If the third parties we rely upon cease to provide access to the third-party software that we, pet parents and pet care providers use, do not provide access to the software on terms that we believe to be attractive or reasonable, or do not provide us with the most current version of the software, we may be required to seek comparable software from other sources, which may be more expensive or inferior, or may not be available at all, any of which would adversely affect our business. For example, we rely on Google Maps for maps and location data that are core to the functionality of our platform, and telecommunication service providers for voice calls and SMS, and we integrate applications, content and data from third parties to deliver our platform and services. Third-party applications, products and services are constantly evolving and we may not be able to maintain or modify our platform to ensure its compatibility with third-party offerings following development changes. If we lose such interoperability, experience difficulties or increased costs in integrating our offerings into alternative devices or systems, or manufacturers or operating systems elect not to include our offerings, make changes that degrade the functionality of our offerings, or give preferential treatment to competitive products, the growth of our community and our business, results of operations and financial condition could be materially adversely affected.

We rely on mobile operating systems and application marketplaces to make our applications available and if they modify their policies, or if we do not effectively operate with or receive favorable placements within such application marketplaces and maintain high user reviews, the usage of our platform or brand recognition could decline and our business, financial results and operating results could be materially adversely affected.

We depend in part on mobile operating systems, such as Android and iOS and their respective application marketplaces, to make our applications available to pet parents and pet care providers that use our platform. Any changes in such systems and application marketplaces that degrade the functionality of our applications, give preferential treatment to our competitors’ applications or limit our ability to market to our customers could adversely affect our platform’s usage on mobile devices. If such mobile operating systems or application marketplaces limit or prohibit us from making our applications available to pet parents and pet care providers, make changes that degrade the functionality of our applications, increase the cost to users or to us of using such mobile operating systems or application marketplaces or our applications, impose terms of use unsatisfactory to us, or modify their search or ratings algorithms in ways that are detrimental to us, or if our competitors’ placement in such mobile operating systems’ application marketplace is more prominent than the placement of our applications, our user growth could slow, pause or decline. Our applications have experienced fluctuations in the past and we anticipate similar fluctuations in the future. In addition, these application marketplaces may modify their guidelines and policies at any time, which has imposed and could continue to impose a significant burden on us, prevented and may in the future prevent us from rolling out updates to our applications, or impair our ability to collect or store information we rely on for marketing, measurement,
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analytics or other business purposes. Any of the foregoing risks could adversely affect our business, financial condition and operating results.

As new mobile devices and mobile platforms, as well as entirely new tech platforms, are developed and released, there is no guarantee that certain devices will continue to support our platform or effectively roll out updates to our applications. Additionally, in order to deliver high-quality applications, we need to ensure that our platform is designed to work effectively with a range of mobile technologies, systems, networks and standards. We may not be successful in developing or maintaining relationships with key participants in the mobile industry that enhance users’ experience. If pet parents or pet care providers that use our platform encounter any difficulty accessing or using our applications on their mobile devices or if we are unable to adapt to changes in popular mobile operating systems, we expect that our user growth and user engagement would be materially adversely affected.

Our platform contains third-party open source software components and failure to comply with the terms of the underlying open source software licenses could restrict our ability to provide our platform.

Our platform contains software modules licensed to us by third-party authors under “open source” licenses. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification, or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability of such software may make it easier for others to compromise our platform.

Some open source licenses contain requirements that may, depending on how the licensed software is used or modified, require that we make available source code for modifications or derivative works we create based upon the licensed open source software, authorize further modification and redistribution of that source code, make that source code available at little or no cost, or grant other licenses to our intellectual property. If we combine our proprietary software with open source software in a certain manner, such as by including source code generated by AI, we could, under certain open source licenses, be required to release the source code of our proprietary software under the terms of an open source software license. This could enable our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the release of the affected portions of our source code, we could be required to purchase additional licenses, expend substantial time and resources to re-engineer some or all of our software or cease use or distribution of some or all of our software until we can adequately address the concerns.

We also release certain of our proprietary software modules to the public under open source licenses. Although we have certain policies and procedures in place to monitor our use of open source software that are designed to avoid subjecting our platform to conditions we do not intend, those policies and procedures may not be effective to detect or address all such conditions, particularly as we incorporate AI-assisted tools into our software development process. In addition, the terms of many open source licenses have not been interpreted by U.S. or foreign courts and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our platform. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software.

If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties to continue providing our platform on terms that are not economically feasible, to re-engineer our platform, to discontinue or delay the provision of our platform if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, financial condition and operating results.

Our use of AI tools trained on open source software may also increase our exposure to the foregoing risks.

We use and may continue to use artificial intelligence in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.

We have incorporated AI solutions into our development practices and may in the future incorporate AI solutions into our platform, offerings, services, features, data analysis, and operations, and these integrations may become important to our business over time. For example, we currently use certain AI solutions to improve the productivity of our engineering efforts and our vendors may implement AI technology in their services to us. Our competitors or other third parties may incorporate AI into their products and operations more quickly or more successfully than us, which could impair our ability to compete
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effectively and adversely affect our results. Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, biased, or in violation of any third-party rights, our business, financial condition, and results of operations may be adversely affected.

Others have experienced cybersecurity incidents from the use of AI applications that implicate the personal data of end users of such applications. Although we have not experienced any cybersecurity incidents resulting from the use of AI applications, we may experience such cybersecurity incidents in the future. Any cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations.

AI also presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government regulation of AI, will require significant resources to develop, test and maintain our platform, offerings, services, and features to help us implement AI ethically in order to minimize unintended, harmful impact.

Risks Related to Our Intellectual Property

Failure to adequately protect our intellectual property could adversely affect our business, financial condition and operating results.

Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of trademarks (including registered trademarks in the United States and foreign jurisdictions), copyrights, trade secrets, patents, license agreements, intellectual property assignment agreements and confidentiality procedures to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology and confidential information by requiring our employees and consultants who develop intellectual property on our behalf to enter into confidentiality and invention assignment agreements and employee non-competition agreements, and third parties with whom we share information to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in the case of unauthorized use or disclosure of our confidential information or technology, or infringement of our intellectual property. In addition, laws banning or limiting the enforcement of employee non-competition agreements may eliminate or curtail the protection afforded by such agreements. Despite our efforts to protect our proprietary rights, unauthorized parties have and may continue to copy aspects of our platform or other software, technology and functionality or obtain and use information that we consider proprietary. In addition, unauthorized parties may also attempt, or successfully endeavor, to obtain our intellectual property, confidential information and trade secrets through various methods, including through scraping of public data or other content from our website or mobile applications, or via cybersecurity attacks, and legal or other methods of protecting this data may be inadequate.

Competitors have and may continue to adopt service names or trade dress similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks that are similar to our trademarks. Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad have been and may be necessary to enforce our intellectual property rights and to determine the validity and scope of the proprietary rights of others. Further, we may not timely or successfully register our trademarks or otherwise secure our intellectual property. Our efforts to protect, maintain, or enforce our proprietary rights may not be respected in the future or may be invalidated, circumvented, or challenged and could result in substantial costs and diversion of resources, which could adversely affect our business, financial condition and operating results.

Intellectual property infringement assertions by third parties could result in significant costs and adversely affect our business, financial condition, operating results and reputation.

We operate in an industry with frequent intellectual property litigation. Other parties have asserted, and in the future may assert, that we have infringed their intellectual property rights. We could be required to pay substantial damages or cease using intellectual property or technology that is deemed infringing. Our use of AI tools in our business may increase the likelihood of such claims.

Further, we cannot predict whether other assertions of third-party intellectual property rights or claims arising from such assertions would substantially adversely affect our business, financial condition and operating results. The defense of these claims and any future infringement claims, whether they are with or without merit or are determined in our favor, may result in costly litigation and diversion of technical and management personnel. Further, an adverse outcome of a dispute may require us
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to pay damages, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed a party’s patent or copyright rights, cease making, licensing, or using products that are alleged to incorporate the intellectual property of others, expend additional development resources to redesign our offerings and enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. In any event, we may need to license intellectual property which would require us to pay royalties or make one-time payments. Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them could adversely affect our business, reputation, financial condition and operating results.

We may be unable to continue to use the domain names that we use in our business or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand, trademarks, or service marks.

We have registered domain names that we use in, or are related to, our business, most importantly www.rover.com. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our offerings under a new domain name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. We may not be able to obtain preferred domain names outside the United States due to a variety of reasons, including because they are already held by others. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar to our domain names. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting, maintaining and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of resources, which could in turn adversely affect our business, financial condition and operating results.

Risks Related to Our Operations

We depend on our highly skilled employees to grow and operate our business and if we are unable to hire, retain, manage and motivate our employees, or if our new employees do not perform as anticipated, we may not be able to grow effectively and our business, financial condition and operating results could be materially adversely affected.

Our future success will depend in part on the continued service of our senior management team, key technical employees and other highly skilled employees, including Aaron Easterly, our co-founder and chief executive officer, Brent Turner, our chief operating officer and president, and Charlie Wickers, our chief financial officer, and on our ability to continue to identify, hire, develop, motivate and retain talented employees. Our U.S.-based employees, including our senior management team, work for us on an at-will basis and there is no assurance that any such employee will remain with us. Any changes in our senior management team or our failure to engage in effective succession planning may be disruptive to our business.

We face intense competition for highly skilled employees. For example, competition for engineering talent is particularly intense and engineering support is particularly important for our business. To attract and retain top talent, we have offered and believe we will need to continue to offer competitive compensation and benefits packages, including by keeping pace with substantial market increases and inflation. Our competitors may be successful in recruiting and hiring members of our management team or other key employees and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms, or at all. If we are unable to attract and retain the necessary employees, particularly in critical areas of our business, we may not achieve our strategic goals.

Job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived or actual value of our equity awards declines further, it may adversely affect our ability to attract and retain highly qualified employees. On the other hand, our employees may receive significant proceeds from sales of our equity which may reduce their motivation to continue to work for us. We have invested and may need to continue to invest significant amounts of cash and equity to attract and retain new employees and have expended and may continue to expend significant time and resources to identify, recruit, train and integrate such employees. We may never realize returns on these investments. If we are unable to effectively manage our hiring needs or successfully integrate new hires, our efficiency, ability to meet forecasts and employee morale, productivity and engagement could suffer, which could adversely affect business, financial conditions and operating results.

Our company culture has contributed to our success and if we cannot maintain and evolve our culture as we grow, our business could be materially adversely affected.
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We believe that our company culture has been critical to our success. We face many challenges that may affect our ability to sustain our corporate culture, including:
•failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values and mission;
•the growth in size and geographic diversity of our workforce;
•competitive pressures to move in directions that may divert us from our mission, vision and values;
•the impact on employee morale resulting from our remote work policy;
•the impact on employee morale created by geopolitical and macroeconomic events, public stock market volatility, and general public company criticism;
•the continued challenges of a rapidly evolving industry;
•the increasing need to develop expertise in new areas of business that affect us;
•negative perception of our treatment of employees, pet parents, pet care providers, or our response to employee sentiment related to political or social causes or actions of management; and
•the integration of new personnel and businesses from acquisitions.

If we are not able to maintain and evolve our culture, our business, financial condition and operating results could be materially adversely affected.

Our support function is critical to the success of our platform and any failure, or perceived failure, to provide high-quality service and support could materially adversely affect our ability to retain our existing pet care providers and pet parents and attract new ones.

Meeting the support expectations of pet care providers and pet parents requires significant time and resources from our support team and significant investment in staffing, technology (including automation and machine learning to improve efficiency), infrastructure, policies and support tools. Failure to develop the appropriate technology, infrastructure, policies and support tools, to hire new operations personnel in a manner that keeps pace with our continued growth, or to manage or properly train our support team, could compromise our ability to resolve questions and complaints quickly and effectively. As part of our 2020 workforce reduction, we significantly reduced the number of employees in our support organization and our technology organization, and since the beginning of 2021 it has been necessary to rapidly increase such personnel, which impacts, or could in the future impact, our ability to provide effective support.

Our service is staffed based on complex algorithms that map to our business forecasts. Any volatility or errors in judgment in those forecasts could lead to staffing gaps that could impact the quality of our service. We have in the past experienced and may in the future experience backlog incidents that lead to substantial delays or other issues in responding to requests for customer support, which may reduce our ability to effectively retain pet care providers and pet parents.

The majority of our product-related customer contact volume typically is serviced by a single third-party service provider. We rely on our internal team and this third party to provide timely and appropriate responses to the inquiries of pet care providers and pet parents that come to us via telephone, email, social media and messaging. Reliance on this third party requires that we provide proper guidance and training for our and their employees, maintain proper controls and procedures for interacting with our community, and ensure acceptable levels of quality and customer satisfaction are achieved. Failure to appropriately allocate functions to this third-party service provider or to maintain suitable training, controls and procedures could materially adversely impact our business. During the first quarter of 2023, we began the process of transitioning from two third-party service providers to a sole third-party service provider for customer support, and this transition was completed during the second quarter of 2023. If this sole third-party service provider fails to provide suitable service in line with our expectations, terminates their relationship with us or refuses to renew their agreement with us on commercially reasonable terms, we may need to find alternate third-party service providers and may not be able to secure similar terms or experience or replace such provider or provide proper guidance and training in an acceptable timeframe, which could adversely impact our ability to timely and appropriately support pet care providers and pet parents.

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We provide support and help to mediate disputes between pet care providers and pet parents. We rely on information provided by pet care providers and pet parents and are at times limited in our ability to provide adequate support or help resolve disputes due to our lack of information or control. To the extent that our users are not satisfied with the quality or timeliness of our support or third-party support, we may not be able to retain pet care providers or pet parents and our reputation as well our business, operating results and financial condition could be materially adversely affected.

When a pet care provider or pet parent has a poor experience on our platform, we may issue refunds or coupons for future bookings, or other customer service gestures of monetary value. These refunds and coupons are generally treated as a reduction to revenue, and we may make payouts for property damage and personal and animal injury claims under the Rover Guarantee. A robust support effort is costly and we expect such costs to continue to rise in the future as we grow our business and implement new product offerings. We have historically seen a significant number of support inquiries from pet care providers and pet parents. Our efforts to reduce the number of support requests as we scale the business may not be effective and we could incur increased costs without corresponding revenue, which would materially adversely affect our business, operating results and financial condition.

We rely on a third-party background check provider and a third-party identification provider to screen potential pet care providers and if such providers fail to provide accurate information or we do not maintain business relationships with them, our business, financial condition and operating results could be materially adversely affected.

In the United States and Canada, we rely on a single third-party background check provider to provide or confirm the criminal and other records of potential pet care providers to help identify those that are not eligible to use our platform pursuant to our internal standards and applicable law, and in the United Kingdom and Western Europe we rely on a single identity verification provider. Our business may be materially adversely affected to the extent such providers do not meet their contractual obligations, our expectations, or the requirements of applicable laws or regulations. If either of our third-party background check provider or our identity verification provider terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we may need to find an alternate provider and may not be able to secure similar terms or replace such partners in an acceptable timeframe. If we cannot find alternate providers on terms acceptable to us, we may not be able to timely onboard potential pet care providers and as a result, we may have difficulty finding enough pet care providers to meet pet parent demand.

We rely primarily on third-party insurance policies to insure our operations-related risks. If our insurance coverage is insufficient for the needs of our business or our insurance providers are unable to meet their obligations, we may not be able to mitigate the risks facing our business, which could adversely affect our business, financial condition and operating results.

We procure third-party insurance policies to cover various operations-related risks, including general liability, auto liability, excess and umbrella liability, employment practices liability, workers’ compensation, property, cybersecurity and data breaches, crime and fiduciary liability, and directors’ and officers’ liability. For certain risks, including certain business interruption losses, such as those resulting from the COVID-19 pandemic or future risks related to our new and evolving services, we may not be able to, or may choose not to, acquire insurance, or such insurance may not cover all claims. For example, claims arising from misclassification of contractors are excluded from our employer’s liability policy. In addition, we may have to pay high premiums, self-insured retentions, or deductibles for the coverage we do obtain. Additionally, if any of our insurance providers becomes insolvent, such provider would be unable to pay any operations-related claims that we make. Further, some of our agreements with vendors require that we procure certain types of insurance and if we are unable to obtain and maintain such insurance, we would be in violation of the terms of these vendor agreements.

Insurance providers have raised premiums and deductibles for many businesses and may do so again in the future. As a result, our insurance and claims expense could increase, or we may decide to raise our deductibles or self-insured retentions when our policies are renewed or replaced. Our business, financial condition and operating results could be materially adversely affected if the cost per claim, premiums, or the number of claims significantly exceeds our historical experience or coverage limits, we experience a claim in excess of our coverage limits, our insurance providers fail to pay on our insurance claims, we experience a claim for which coverage is not provided, or the number of claims under our deductibles or self-insured retentions differs from historical averages.

While the Rover Guarantee is a commercial agreement with pet parents and pet care providers for which we are responsible, we rely on our general liability insurance policy to provide coverage to us for claims and losses subject to the Rover Guarantee that exceed our self-insured retention. Increased claim frequency and severity and increased fraudulent claims could result in
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greater payouts, premium increases, or difficulty securing coverage. Further, disputes with pet care providers as to whether the Rover Guarantee applies to alleged losses or damages and the increased submission of fraudulent payment requests could require significant time and financial resources.

We may face difficulties as we expand our operations into new local markets in which we have limited or no prior operating experience.

Our capacity for continued growth depends in part on our ability to expand our operations into and compete effectively in new local markets, including in geographies outside of the United States. It may be difficult for us to accurately predict pet parent preferences and purchasing habits in new local markets. In addition, each market has unique regulatory dynamics. These include laws and regulations that can directly or indirectly affect our ability to operate, the pool of pet care providers that are available and our costs associated with insurance, support, fraud and onboarding new pet care providers. Each market also is subject to distinct competitive and operational dynamics. These include our ability to provide more attractive offerings than alternative options, to provide effective customer support and to efficiently attract and retain pet parents and pet care providers, all of which affect our sales, operating results and key business metrics. We may experience fluctuations in our operating results due to changing dynamics in the local markets in which we operate. If we invest substantial time and resources to expand our operations and are unable to manage these risks effectively, our business, financial condition and operating results could be materially adversely affected.

Our headquarters and other essential business operations could face catastrophic events, including those from natural or climate change-related disasters, that may disrupt our operations and harm our business.

Our headquarters and certain other essential customer support operations are located in Washington state, which is a seismically active region. We maintain additional customer support operations in Texas, which is a state subject to hurricanes and tropical storms. Certain pet parents, pet care providers, remote employees and third-party customer service support personnel live in areas where the risk of natural or climate-related disaster or other catastrophic losses exists, and the occasional incidence of such an event could cause substantial damage to us, pet parents, pet care providers, employees, third-party customer service support personnel or the surrounding area. The occurrence of a natural or climate-related disaster such as an earthquake, drought, flood, fire (such as wildfires in Washington and in the western United States and Canada), hurricane, heat wave, tropical storm, localized extended outages of critical utilities or transportation systems, or any critical resource shortages could negatively impact bookings on our platform, adversely impact our ability to provide timely customer service, and cause a significant interruption in our business, damage or destroy our facilities or those of service providers on which we rely, and cause us to incur significant costs, any of which could harm our business, financial condition and results of operations. The insurance policies we maintain may not cover such losses or may not be adequate to cover losses in any particular case.

Our presence outside the United States and any future international expansion strategy will subject us to additional costs and risks and our plans may not be successful.

We opened our platform in Canada in 2017 and in the United Kingdom and Western Europe in 2018, and we may continue to expand our international operations. We are a growing platform with pet care providers in over 30,000 neighborhoods globally as of September 30, 2023. Operating outside of the United States requires significant management attention to oversee operations over a broad geographic area with varying cultural norms and customs, in addition to placing strain on our finance, analytics, compliance, legal, engineering and operations teams. We may incur significant operating expenses and may not be successful in any international expansion efforts for a variety of reasons, including:
•recruiting and retaining talented and capable employees in foreign countries and maintaining our company culture across all of our offices;
•an inability to attract pet care providers and pet parents;
•an inability to effectively scale Rover brand awareness outside the United States;
•competition from local providers that better understand the local market, may market and operate more effectively and may enjoy greater local affinity or awareness;
•differing demand dynamics, which may make our platform less successful;
•an inability to successfully tailor our product offerings to different cultural customs and norms;
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•an inability of our international markets to scale and mature in the same way or on the same time horizon as the U.S. market;
•complying with varying laws and regulatory standards, including with respect to labor and employment, data privacy, data protection, and information security, tax and local regulatory restrictions;
•obtaining any required government approvals, licenses, or other authorizations;
•varying levels of Internet and mobile technology adoption and infrastructure;
•currency exchange restrictions or costs and exchange rate fluctuations;
•operating in jurisdictions that do not protect intellectual property rights in the same manner or to the same extent as the United States;
•public health concerns or emergencies, such as COVID-19 and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred and which may occur, in various parts of the world in which we operate or may operate in the future; and
•limitations on the repatriation and investment of funds as well as foreign currency exchange restrictions.

Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake may not be successful. If we invest substantial time and resources to further expand our operations internationally and are unable to manage these risks effectively, our business, financial condition and operating results could be materially adversely affected.

International expansion also may increase our risks in complying with various laws and standards, including with respect to anti-corruption, anti-bribery, export controls and trade and economic sanctions.

Failure to successfully execute and integrate acquisitions or receive a favorable return on acquisitions or strategic investments could materially adversely affect our business, operating results and financial condition.

As part of our business strategy, we will continue to consider a wide array of potential strategic transactions, including acquisitions of businesses, new technologies, services and other assets and strategic investments that complement our business. For example, in 2022 we consummated a small acquisition of GoodPup, an early-stage company that operates a virtual dog training platform, and made a small investment in another early-stage company with a complementary service offering. We have previously acquired and continue to evaluate targets that operate in relatively nascent markets and as a result, there is no assurance that such acquired businesses will be successfully integrated into our business or such acquired businesses or investments will generate substantial revenue or a favorable return on investment. Acquisitions and strategic investments involve numerous risks, any of which could harm our business and negatively affect our financial condition and operating results, including:
•intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms;
•failure or material delay in closing a transaction;
•transaction-related lawsuits or claims;
•difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company, including managing internal controls and any privacy or data security risks associated with such acquisitions;
•difficulties in retaining key employees or business partners of an acquired company;
•difficulties in retaining merchants, consumers and service providers, as applicable, of an acquired company;
•challenges with integrating the brand identity of an acquired company with our own;
•diversion of financial and management time and resources from existing operations or alternative acquisition or investment opportunities to acquisition integration;
•failure to realize the anticipated benefits or synergies of a transaction;
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•failure to identify the problems, liabilities, or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory and tax compliance practices, litigation, revenue recognition or other accounting practices, or employee or user issues;
•risks that regulatory bodies may enact new laws or promulgate new regulations that are adverse to an acquired company or business;
•risks that regulatory bodies do not approve our acquisitions or business combinations or delay such approvals;
•theft of our trade secrets or confidential information that we share with potential acquisition candidates;
•liability for pre-acquisition activities of an acquired company;
•litigation or other claims or liabilities arising in connection with the acquisition of the acquired company;
•impairment charges associated with goodwill, long-lived assets, investments, and other acquired intangible assets;
•risk that an acquired company or investment in new services cannibalizes a portion of our existing business;
•failure to receive a favorable return on investment for prior or future business combinations or investments; and
•adverse market reaction to an acquisition or investment.

For example, in 2020 we recognized a $2.1 million impairment related to the write-down of our investment in DogHero, a pet care marketplace based in Brazil. During the three months ended June 30, 2023, we recorded non-cash impairment charges of $3.8 million to write off goodwill in full for the GoodPup reporting unit and $3.2 million related to acquired tradenames, shelter relationships, training curriculum and developed technology from the GoodPup asset group. See Part I, Item 1, Note 8—Goodwill and Intangible Assets for more information. Impairment may result from, among other things, deterioration in performance, adverse market conditions such as the challenging fundraising environment currently facing early stage companies like our equity investment in an early-stage company that provides a service for pet parents that is complementary to our current offerings, adverse changes in applicable laws or regulations, challenges applying our technological, marketing, and operational expertise to help scale acquisitions or investments in a profitable, efficient, and effective manner, and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. If we are required to record additional non-cash impairment charges to our goodwill, other intangibles, and/or long-lived assets or write down the carrying value related to past or future acquisitions or investments, such a non-cash charge or write down in carrying value could have a material adverse effect on our consolidated statements of operations in the reporting period in which we record the charge.

If we fail to address the foregoing risks or other problems encountered in connection with past or future acquisitions of businesses, new technologies, services and other assets and strategic investments, or if we fail to successfully integrate such acquisitions or investments, our business, financial condition and operating results could be materially adversely affected.

We may require additional capital to support business growth and this capital might not be available on acceptable terms, or at all.

To support our growing business and to effectively compete, we must have sufficient capital to continue to make significant investments in our platform. We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new platform features and services or enhance our existing platform, improve our operating infrastructure, or acquire complementary businesses and technologies. Although we currently anticipate that our existing cash, cash equivalents and marketable securities and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, we may require additional financing over the long-term. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity, equity-linked securities, or convertible debt securities, our existing stockholders could suffer significant dilution and any new securities we issue could have rights, preferences and privileges superior to those of current equity investors. If we raise additional funds through the incurrence of indebtedness, then we may be subject to increased fixed payment obligations and could be subject to restrictive covenants, such as limitations on our ability to incur additional debt and other operating restrictions that could adversely impact our ability to conduct our business. Any additional future indebtedness we may incur may result in terms that could be unfavorable to our equity investors.

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We evaluate financing opportunities from time to time and our ability to obtain financing will depend, among other things, on our development efforts, business plans and operating performance and the condition of the capital markets at the time we seek financing. Volatility in the equity capital markets, bank failures or issues in the broader U.S. financial system, or a decline in the market price of our securities also could adversely affect our ability to issue additional equity securities or to obtain additional financing in the future to fund business operations or future growth plans. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired and our business, financial condition and operating results may be materially adversely affected.

Our applications for the Paycheck Protection Program Loan and the employee retention credit under the CARES Act could in the future be determined to have been impermissible or could result in damage to our reputation.

In April 2020, we entered into a certain Paycheck Protection Program, or PPP, Promissory Note and Agreement with Silicon Valley Bank, pursuant to which we received loan proceeds of $8.1 million, or the PPP Loan. The PPP Loan was subject to the terms and conditions of the PPP, which was established under the CARES Act and is administered by the U.S. Small Business Administration, or the SBA. The PPP loan application required us to certify, among other things, that the “current economic uncertainty” made the PPP Loan request “necessary” to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our workforce, our need for additional funding to continue operations, the severe impact of COVID-19 on our revenue, financial covenants associated with then-existing loans and our ability to access alternative forms of capital in the then-current market environment to offset the effects of the COVID-19 pandemic. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loans and that our receipt of the PPP Loans was consistent with the broad objectives of the CARES Act. The certification described above did not contain any objective criteria and is subject to interpretation.

In accordance with the requirements of the PPP, we used the PPP Loan to cover certain qualified expenses, including payroll costs, rent and utility costs. We repaid the principal and accrued interest on the PPP Loan in connection with the closing of the Merger on July 30, 2021.

The lack of clarity regarding loan eligibility under the PPP has resulted in significant media coverage and controversy with respect to companies that applied for and received loans. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any applicable laws or regulations that may apply to us in connection with the PPP Loan or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, which could also result in adverse publicity and damage to our reputation. While the SBA reviewed our PPP Loan in January 2022 and requested documentation without incident, the SBA could still conduct further reviews and request additional documentation.

As discussed in Note 7—Balance Sheet Components, in the second quarter of 2022, we filed an application with the U.S. Internal Revenue Service, or IRS, for an employee retention credit of $3.3 million. We recorded other income of $1.9 million related to the partial realization of the credit in the second quarter of 2023. In September 2023, the IRS announced an immediate moratorium on processing new employee retention credit claims amid a surge of questionable claims and that previously filed claims would be subject to enhanced compliance scrutiny. Our eligibility remains subject to audit by the IRS for a period of five years.

While we believe we can demonstrate that we satisfied all relevant eligibility criteria for the PPP Loan and employee retention credit and used all proceeds of the PPP Loan for permissible expenses, there is no guarantee that the SBA or IRS will agree, and any adverse findings or prolonged audit proceedings could, in addition to fines or penalties, result in the diversion of management’s time and attention and legal and reputational costs. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Financial Reporting and Disclosure

Because we recognize revenue upon the start of a booked service and not at booking, upticks or downturns in bookings are not immediately reflected in our operating results.

We experience a difference in timing between when a booking is made and when we recognize revenue, which occurs when the service is provided. The effect of significant downturns in bookings or increases in cancellations for upcoming booking
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dates in a particular quarter may not be fully reflected in our operating results until future periods because of this timing in revenue recognition, but would reduce our deferred revenue for the relevant period.

We track certain operational metrics with internal systems and tools and do not independently verify such metrics. Certain of our operational metrics are subject to inherent challenges in measurement and any real or perceived inaccuracies in such metrics may adversely affect our business and reputation.

We track certain operational metrics, including our key business metrics such as the number of bookings, GBV, and pet parent cohort behavior, with internal systems and tools that are not independently verified by any third party and which may differ from estimates or similar metrics published by third parties due to differences in sources, methodologies, or the assumptions on which we rely. Our internal systems and tools have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we publicly disclose. If the internal systems and tools we use to track these metrics under count or over count performance or contain algorithmic or other technical errors, the data we report may not be accurate.

While these numbers are based on what we believe to be reasonable estimates of our metrics for the applicable period of measurement, there are inherent challenges in measuring how our platform is used across large populations. For example, the accuracy of our operating metrics could be impacted by fraudulent users of our platform, and further, we believe that there are consumers who have multiple accounts, even though this is prohibited in our Terms of Service and we implement measures to detect and prevent this behavior. In addition, limitations or errors with respect to how we measure data or with respect to the data that we measure may affect our understanding of certain details of our business, which could affect our long-term strategies. If our operating metrics are not accurate representations of our business, if investors do not perceive our operating metrics to be accurate, or if we discover material inaccuracies with respect to these figures, we expect that our business, reputation, financial condition and operating results would be materially adversely affected.

Our management has limited experience in operating a public company.

Our executive officers and directors have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage being a public company, and we are subject to significant regulatory oversight and reporting obligations under federal securities laws. Our executive officers’ limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to our management and growth. We have hired, and it is likely we will hire in the future, additional employees to support our operations as a public company, which will increase our operating costs in future periods.

Activist stockholders may attempt to effect changes at our company, acquire control over our company or seek a sale of our company, which could impact the pursuit of business strategies and adversely affect our results of operations and financial condition.

Our stockholders may from time to time engage in proxy solicitations, advance stockholder proposals or otherwise attempt to affect changes or acquire control over our company. Campaigns by stockholders to effect changes at public companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of the entire company. For example, in 2022 an activist investor acquired a stake in a company that, like us, went public via a merger with a special purpose acquisition company, or SPAC, and recommended that it consider strategic alternatives, including a sale, citing, among other reasons, its recent stock price underperformance and the market’s largely unfavorable view of companies taken public via a SPAC. We could face a similar campaign if the unfavorable view of SPACs continues or if our stock price does not improve. Responding to proxy contests, which may increase as a result of the SEC’s universal proxy rules, and other actions by activist stockholders can lead to changes in governance and reporting, be extremely costly and time-consuming, divert the attention of our board of directors, or the Board, and senior management from the management of our operations and the pursuit of our business strategies, and impact the manner in which we operate our business in ways in which we cannot currently anticipate. As a result, stockholder campaigns could adversely affect our results of operations and financial condition.

We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain effective internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
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We have identified material weaknesses in our internal control over financial reporting as described below. 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 Nebula Caravel Acquisition Corp. our legal predecessor, or 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, implementing additional procedures and controls, and engaging an external advisor. See Part I, Item 4 “Controls and Procedures—Remediation Efforts to Address Previously Identified Material Weaknesses” of this report for a discussion of these remediation measures. We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.

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Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the Nasdaq stock exchange, the SEC, or other regulatory authorities. Failure to timely file will cause us to be ineligible to utilize short-form registration statements on Form S-3, which may impair our ability to obtain capital in a timely fashion to execute our business strategies and issue shares to effect a business combination. In either case, there could be a material adverse effect on our business. The existence of material weaknesses in internal control over financial reporting could adversely affect our reputation or investor perceptions of us, which could have a negative effect on the trading price of our Class A Common Stock. In addition, we will incur additional costs to remediate material weaknesses in our internal control over financial reporting.

Our management’s first annual assessment of the effectiveness of our internal control over financial reporting was included in our Annual Report on Form 10-K for the year ended December 31, 2022. We are now required to disclose material changes made in our internal control over financial reporting on a quarterly basis. Our independent registered public accounting firm will first be required to audit the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K for the first year we are no longer an “emerging growth company” or eligible for other relief. Failure to comply with the rules and regulations of the SEC could potentially subject us to sanctions or investigations by the SEC, the Nasdaq stock exchange or other regulatory authorities, which would require additional financial and management resources.

We may face litigation and other risks as a result of the material weakness in the internal control over financial reporting of Caravel.

Following the issuance of the SEC’s “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies,” after consultation with Caravel’s independent registered public accounting firm, Caravel’s management and audit committee concluded that it was appropriate to restate its previously issued audited financial statements as of December 31, 2020. As part of the restatement, Caravel identified a material weakness in its internal controls over financial reporting.

As a result of such material weakness, the restatement, the change in accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, we may face potential litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in Caravel’s and Legacy Rover’s internal control over financial reporting and the preparation of Caravel’s and Legacy Rover’s financial statements. We can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Ownership of Class A Common Stock

The market price of our Class A Common Stock has been, and may continue to be, volatile and may decline.

The trading price of our Class A Common Stock has been and may continue to be volatile and subject to wide fluctuations in response to the risk factors described in this report and other factors beyond our control as listed below. Any of such factors could have a material adverse effect on an investment in our Class A Common Stock, and our Class A Common Stock may trade at prices significantly below the price an investor paid for them. In such circumstances, the trading price of our Class A Common Stock may not recover and may experience a further decline. For example, between August 2, 2021 and November 3, 2023, our Class A Common Stock’s trading price on Nasdaq has ranged from a low of $3.14 to a high of $15.59. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities litigation.

Factors affecting the trading price of our Class A Common Stock may include:
•general macroeconomic conditions, including sustained levels of increased inflation, rising interest rates, lower consumer confidence, depressed consumer spending, higher levels of consumer debt, lower pet adoption levels, the number of pet owning households, a reduction in the volume of home sales and its impact on relocating households, volatile equity capital markets, changes in monetary and fiscal policy, any U.S. government shutdown, and economic uncertainty, slower economic growth and recessions, and geopolitical events such as the current armed conflicts between Ukraine and Russia and between Israel and Hamas and their impact on fuel and commodity costs and travel demand;
•actual or anticipated changes or fluctuations in our quarterly or annual operating and financial results or any financial projections and guidance we may provide to the public, changes in the market’s expectations about our operating and
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financial results, or failure to meet or exceed our financial projections and guidance or the expectation of securities analysts or investors in a particular period;
•actual or anticipated fluctuations in annual or quarterly operating and financial performance, stock market trading volumes and trading prices of other technology or growth companies generally, or those in the pet care industry or otherwise perceived to be similar to us in particular;
•the impact of the COVID-19 pandemic and other non-COVID illnesses on our business;
•any unfavorable view by the market of companies taken public via a SPAC;
•announcements by us or our competitors of new technology, features, services or strategic partnerships or other agreements;
•our competitors’ performance;
•developments or disputes concerning our intellectual property or other proprietary rights;
•actual or perceived data security breaches or other data security incidents;
•announced or completed acquisitions of businesses by us or our competitors or rumors of such transactions involving us or our competitors;
•stock repurchase programs undertaken by us, including the one we announced in February 2023 and extended in November 2023;
•any major change in our board of directors or management;
•changes in laws and regulations affecting our business, actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally and any related market speculation;
•litigation and any related adverse outcomes or settlements involving us, our industry or both;
•governmental or regulatory actions or audits;
•regulatory or legal developments in the United States and other countries;
•stockholder activism;
•announcement or expectation of additional financing efforts;
•changes in accounting standards, policies, guidelines, interpretations or principles;
•our ability to meet compliance requirements;
•concentrated ownership by management or significant stockholders;
•the public’s reaction to our press releases, other public announcements, and filings with the SEC;
•operating and share price performance of other companies that investors deem comparable to us;
•price and trading volume fluctuations in the overall stock market from time to time;
•failure of securities analysts to maintain coverage of us, or changes in financial estimates and recommendations by securities analysts concerning us or the pet care industry in general;
•changes in our capital structure, such as future issuances of securities, including the last tranche of 2,192,687 shares of Class A Common Stock that may be issued to former Legacy Rover stockholders upon the Class A Common Stock achieving certain share price milestones pursuant to our Business Combination Agreement with Caravel, or Earnout Shares, or the incurrence of debt;
•trading volume fluctuations in our shares of Class A Common Stock from time to time and the volume of shares of Class A Common Stock available for public sale or being sold, including:
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◦shares sold pursuant to Rule 10b5-1 plans that have been adopted by our executive officers and certain employees and Rule 10b5-1 plans that may be adopted in the future by our executive officers, employees or directors,
◦shares sold to satisfy tax withholding obligations and the aggregate exercise price for the exercise of stock options,
◦any shares sold if we reimplement a “sell-to-cover” program to satisfy tax withholding obligations upon the vesting of our employees’ RSUs;
•sales or other distributions of shares of Class A Common Stock by us;
•sales or other distributions of substantial amounts of shares of Class A Common Stock by our directors, executive officers or significant stockholders or the perception that such sales or other distributions could occur such as the publicly announced pro rata in-kind distribution in June 2023 by one of our five percent or greater stockholders of approximately 4.3 million shares;
•entry into or exit from stock market indices; and
•other factors identified throughout these “Risk Factors.”

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock markets in general have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks and of our securities may not be predictable. A loss of investor confidence in the market for retail, technology or growth stocks or the stocks of other companies which investors perceive to be similar to us has and could further depress our share price regardless of our business, prospects, financial conditions or results of operations. Volatility in the equity capital markets or a decline in the market price of our securities also could adversely affect our ability to issue additional equity securities, our ability to obtain additional financing in the future to fund business operations or future growth plans, and the retentive power of our equity compensation plans, which we rely upon in part to retain key executives and employees.

Further and sustained declines in the market price of our Class A Common Stock could result in notice that we are not in compliance with the per share minimum price requirements for continued listing on Nasdaq. If this occurred and we were unable to cure this violation, we could be delisted, which would have a further material adverse effect on market prices of our Class A Common Stock and stockholder liquidity.

Insiders currently have and may continue to possess substantial influence over us, which could limit investors’ ability to affect the outcome of key transactions, including a change of control.

As of November 3, 2023, our executive officers, directors and their affiliates as a group beneficially owned approximately 35% of the Class A Common Stock representing approximately 33% of the vote (the calculation of such amounts excludes the last tranche of 2,192,687 earnout shares, unvested RSUs and options to purchase Class A Common Stock that remain issued and outstanding, and equity awards that may be issued in the future under our employee benefit plans, including the 2021 Equity Incentive Plan, or the 2021 Plan, and the 2021 Employee Stock Purchase Plan, or the 2021 ESPP).

As a result, these stockholders, if they act together, may be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors, amendments of our organizational documents, and approval of significant corporate transactions. They may also have interests that differ from other stockholders and may vote in a way with which other stockholders disagree and which may be adverse to their interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control and might affect the market price of our Class A Common Stock.

In addition, Nebula Caravel Holdings, LLC holds the right to designate a director to our Board. This control could have the effect of delaying or preventing a change of control or changes in our management and could make the approval of certain transactions difficult or impossible without the support of insider stockholders and their votes.

Because there are no current plans to pay cash dividends on our Class A Common Stock for the foreseeable future, investors may not receive any return on investment unless they sell their Class A Common Stock at a price greater than what they paid for it.
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We intend to retain future earnings, if any, for future operations and expansion, our publicly announced stock repurchase program, to pay taxes related to employee RSU vesting, and any future debt repayment. There are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of our Class A Common Stock will be at the sole discretion of the Board. The Board may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications of the payment of dividends to our stockholders or by our subsidiaries to us and such other factors as the Board may deem relevant. As a result, investors may not receive any return on an investment in our Class A Common Stock unless they sell their Class A Common Stock for a price greater than that which they paid for it.

Our stockholders may experience significant dilution in the future.

The percentage of shares of our Class A Common Stock owned by current stockholders will be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards granted to our directors, officers and employees or meeting the conditions under the last tranche of 2,192,687 Earnout Shares. These issuances may have a significant dilutive effect on our earnings per share, which could adversely affect the market price of our Class A Common Stock. For example, because the volume weighted average price of our Class A Common Stock over the 20 trading days preceding and inclusive of September 29, 2021 exceeded $12.00 and $14.00, the first two tranches of Earnout Shares were triggered, and we issued an aggregate of 17,540,964 Earnout Shares to eligible former Legacy Rover stockholders in October 2021. Further, in connection with the redemption of all of our outstanding warrants, we issued 2,046,220 shares of Class A Common Stock in January 2022 related to the cashless exercise of certain of those warrants during December 2021 and January 2022.

We currently enable “sell-to-cover” transactions to satisfy tax withholding obligations and the aggregate exercise price for the exercise of stock options. We have previously utilized, and may utilize again in the future, “sell-to-cover” transactions to satisfy tax withholding obligations for the vesting of RSUs. Under “sell-to-cover,” shares with a market value equivalent to the tax withholding obligation and aggregate exercise price will be sold on behalf of the individual exercising vested options to cover the tax withholding liability and aggregate exercise price, and the cash proceeds related to tax withholding obligations from these sales will be remitted by us to the taxing authorities. These sales will not result in the expenditure of additional cash by us to satisfy the tax withholding obligations for options, but will cause dilution to our stockholders and, to the extent a large number of shares are sold in connection with any exercise event, such sales volume may cause our stock price to fluctuate.

We cannot guarantee that our share repurchase program will be utilized to the full value approved or that it will enhance long-term stockholder value.

In February 2023, our Board approved a 12-month share repurchase program authorizing the purchase of up to $50.0 million of Class A Common Stock (exclusive of brokers’ commissions and expenses). The repurchase program does not obligate us to acquire any specific number of shares of Class A Common Stock. In November 2023, our board of directors approved an extension of the share repurchase program to run through February 28, 2025 and an increase to the total authorized amount under the program of up to $100.0 million resulting in a total authorized amount of up to $150.0 million (exclusive of brokers’ commissions and expenses) of Class A common stock, including the $49.0 million repurchased through November 1, 2023. The timing, volume, purchase price and nature of repurchases will be determined by our management and depend on a variety of factors, including stock price, trading volume, market and economic conditions, other general business considerations such as alternative investment opportunities, applicable legal requirements and tax laws, and other relevant factors, all of which may be further impacted by macroeconomic conditions and factors, including rising interest rates and inflation, global conflicts, and public health trends. Repurchases under the program have been authorized through February 28, 2025, but the program may be modified, suspended, or terminated at any time at the discretion of our Board, which may result in a decrease in our stock price. Additionally, the Inflation Reduction Act of 2022 introduced a 1% excise tax on share repurchases, which increases the costs associated with repurchasing shares of our Class A Common Stock. Through November 1, 2023, we have repurchased approximately 9.1 million shares for an aggregate amount of approximately $49.0 million (excluding brokers’ commissions and excise tax).

The existence of a share repurchase program could cause our stock price to trade higher than it otherwise would be and could potentially reduce the market liquidity for our stock. Any failure to repurchase the entire $150.0 million authorized under our share repurchase program may negatively impact our reputation, investor confidence in us, and our stock price. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value nor may it prove to be the best use of our cash. Although share repurchase programs are intended to enhance long-term stockholder value, there is no
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assurance ours will do so because our stock price may decline below the levels at which we repurchased shares and short-term stock price fluctuations could reduce the effectiveness of our program. Share repurchases could have an impact on our stock price, increase the volatility of our stock price, or reduce our available cash balance such that we may be required to seek financing to fund capital expenditures and strategic acquisitions or business opportunities.

Delaware or Washington law and provisions in our certificate of incorporation and bylaws might delay, discourage or prevent a change in control or changes in our management, thereby depressing the market price of our Class A Common Stock.

Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, or DGCL, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws contain provisions that may make an acquisition of our company more difficult or delay or prevent changes in control of our management. Among other things, these provisions:
•authorize the Board to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;
•permit only the Board to establish the number of directors and fill vacancies on the Board;
•establish that our Board is divided into three classes, with each class serving staggered three-year terms;
•provide that our directors may be removed only for cause;
•permit stockholders to take actions only at a duly called annual or special meeting and not by written consent;
•require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings;
•prohibit stockholders from calling a special meeting of stockholders; and
•require a super-majority vote of stockholders to amend some of the provisions described above.

In addition, because our principal executive offices are located in Washington, the anti-takeover provisions of the Washington Business Corporation Act may apply to us under certain circumstances now or in the future. These provisions prohibit a “target corporation” from engaging in any of a broad range of business combinations with any stockholder constituting an “acquiring person” for a period of five years following the date on which the stockholder became an “acquiring person.”

These provisions, alone or together, could delay, discourage or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing or cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our Class A Common Stock and could also affect the price that some investors are willing to pay for our Class A Common Stock.

Our bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders and also provide that the federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which limits our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, stockholders or employees.

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 our 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, our certificate of incorporation or our 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 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
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court does not have subject matter jurisdiction. This provision does not apply to any action brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or the Exchange Act, or its rules and regulations.

Section 22 of the Securities Act of 1933, as amended, or the Securities Act, establishes concurrent jurisdiction for federal and state courts over Securities Act claims. Accordingly, both state and federal courts have jurisdiction to hear such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act against any person in connection with any offering of our securities, including, without limitation and for the avoidance of doubt, any auditor, underwriter, expert, control person or other defendant.

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 is deemed to have notice of and consented to the foregoing bylaw provisions. Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of such stockholder’s choosing for disputes with us or our current or former directors, officers, stockholders or other employees, which may discourage such lawsuits against us and our current and former directors, officers, stockholders and other employees. In addition, a stockholder that is unable to bring a claim in the judicial forum of such stockholder’s choosing may be required to incur additional costs in the pursuit of actions which are subject to the exclusive forum provisions described above. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provisions.

Further, the enforceability of similar exclusive forum provisions in other companies’ organizational documents has been challenged in legal proceedings and it is possible that a court of law could rule that these types of provisions are inapplicable or unenforceable if they are challenged in a proceeding or otherwise. If a court were to find either exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur significant additional costs associated with resolving such action in other jurisdictions, all of which could harm our results of operations.

General Risk Factors

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which may adversely affect investor confidence in us and, as a result, the market price of our Class A Common Stock.

As a public company, we are required to comply with the requirements of the Sarbanes-Oxley Act, including, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers.

We must continue to improve our internal control over financial reporting. We made our first formal assessment of the effectiveness of our internal control over financial reporting for the year ended December 31, 2022 in our Annual Report on Form 10-K for the year ended December 31, 2022, and once we cease to be an emerging growth company or eligible for other relief, we will be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with these requirements within the prescribed time period, we have engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we have and will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our internal control over financial reporting, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. There is a risk that we will not be able to conclude that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes-Oxley Act. For example, we determined that our internal control over financial reporting is not effective due to the existence of material weaknesses as described in Part I, Item 4 of this report, and due to these material weaknesses we also determined that our disclosure controls and procedures were not effective. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies in internal control over financial reporting that are deemed to be material weaknesses.

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Any failure to implement and maintain effective disclosure controls and procedures and internal control over financial reporting, including the identification of one or more material weaknesses, could cause investors to lose confidence in the accuracy and completeness of our financial statements and reports, which would likely adversely affect the market price of our Class A Common Stock. In addition, we could be subject to sanctions or investigations by Nasdaq, the SEC and other regulatory authorities.

The value of our marketable securities could decline, which could adversely affect our results of operations and financial condition.

Our marketable securities portfolio includes various holdings, types, and maturities. The average contractual maturity of our available-for-sale investments is approximately eleven months as of September 30, 2023. Market values of these investments can be adversely impacted by various factors, including liquidity in the underlying security, credit deterioration, the financial condition of the credit issuer, foreign exchange rates, and changes in interest rates. Our marketable securities, which we consider highly-liquid investments, are classified as available-for-sale and are recorded on our condensed consolidated balance sheets at their estimated fair value, but we have the ability to hold them until a market price recovery or maturity. Unrealized gains and losses on available-for-sale debt securities are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and credit loss reserves are reported within other income (expense), net in the consolidated statements of operations. If the fair value of our marketable equity securities declines, our earnings will be reduced or losses will be increased. Furthermore, our interest income from cash, cash equivalents, and our marketable securities are impacted by changes in interest rates, and a decline in interest rates or lower investment balances would adversely impact our interest income.

Growing focus on evolving environmental, social, and governance issues (ESG) by stockholders, customers, regulators and other stakeholders may impose additional risks and costs on our business.

Environmental, social, and governance, or ESG, matters have become an area of growing and evolving focus among public company stockholders and other stakeholders, including among customers, employees, regulators and the general public in the United States and abroad. In particular, companies face heightened expectations with respect to their practices, disclosures and performance in relation to climate change, diversity, equity and inclusion, human capital management, cybersecurity, data privacy and security, and supply chains (including human rights issues), among other topics.

If we fail to meet evolving investor and stakeholder expectations on ESG matters or if we are perceived not to have responded appropriately or in a timely manner to ESG issues that are material to our business, including failing to satisfy reporting and disclosure expectations, we may experience harm to our brand and reputation, adverse press coverage, a reduction in our attractiveness as an investment, greater regulatory scrutiny and potential legal claims, greater difficulties in attracting and retaining customers and talent, and as a consequence, our business, results of operations, financial condition and/or stock price could be materially adversely affected. We also expect to incur additional costs and require additional resources to monitor, report, and comply with various ESG initiatives, including the SEC’s recently adopted cybersecurity disclosure rules and the SEC’s proposed climate change disclosure rules.

Certain estimates and information contained in this report and our other filings with the SEC are based on information from third-party sources and we do not independently verify the accuracy or completeness of the data contained in such sources or the methodologies for collecting such data. Any real or perceived inaccuracies in such estimates and information may harm our reputation and adversely affect our business.

Certain estimates and information contained in this report and other filings with the SEC, including general expectations concerning our industry and the market in which we operate, category share, market opportunity and market size, are based to some extent on information provided by third-party providers. This information involves a number of assumptions and limitations and although we believe the information from such third-party sources is reliable, we have not independently verified the accuracy or completeness of the data contained in such third-party sources or the methodologies for collecting such data. If there are any limitations or errors with respect to such data or methodologies, if investors do not perceive such data or methodologies to be accurate, or if we discover material inaccuracies with respect to such data or methodologies, our reputation, financial condition and operating results could be materially adversely affected.

111

We are incurring significant increased expenses and administrative burdens as a public company, which could have an adverse effect on our business, financial condition and results of operations.

Since 2021, we have incurred increased legal, accounting, administrative and other costs and expenses as a public company that Legacy Rover did not incur as a private company, and these expenses may increase even more after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, including the requirements of Section 404, and the rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated thereunder, the Public Company Accounting Oversight Board, and the Nasdaq listing standards impose additional reporting and other obligations on public companies. Compliance with these requirements has increased costs, made certain activities more time-consuming, and required us to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. If any issues in complying with these requirements are identified (for example, if our management or independent registered public accounting firm identifies additional material weaknesses in the internal control over financial reporting), we could incur additional costs rectifying those issues, the existence of those issues could adversely affect our reputation or investor perceptions of us, and it may be more expensive to obtain director and officer liability insurance.

Risks associated with our status as a public company may make it more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers. Our public company status has made it more expensive to obtain director and officer liability insurance, and we have incurred considerable costs to maintain the level of coverage that we believe is appropriate for a public company. In addition, such insurance provides for a significant retention of liability, is subject to limitations and may not cover a significant portion, or any, of the expenses we may now incur or be subject to in connection with any stockholder class action or other litigation to which we are named as a party.

As a result of filings required of a public company, our business and financial condition has become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be materially adversely affected and even if the claims do not result in litigation or are resolved in our favor, these claims and the time and resources necessary to resolve them could divert the resources of our management and adversely affect our business and results of operations.

We are an emerging growth company and any decision to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A Common Stock less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to continue to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:
•not being required to have an independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
•reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and
•exemptions from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.

As a result, stockholders may not have access to certain information that they may deem important. Our status as an emerging growth company will end as soon as any of the following takes place:
•the last day of the fiscal year in which we have at least $1.235 billion in annual revenue;
•the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates;
•the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or
•the last day of the fiscal year ending after the fifth anniversary of the Caravel IPO, which is December 31, 2025.

112

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected not to take advantage of this extended transition period.

We cannot predict if investors will find our Class A Common Stock less attractive if we choose to continue to rely on any of the exemptions afforded emerging growth companies. If some investors find our Class A Common Stock less attractive because we continue to rely on any of these exemptions, there may be a less active trading market for the Class A Common Stock and the market price of the Class A Common Stock may be more volatile and may decline.

If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business or our industry, or if they adversely change their recommendations regarding our Class A Common Stock, the trading price and/or the trading volume of our Class A Common Stock could decline.

The trading market for our Class A Common Stock is influenced in part by the research and reports that securities or industry analysts publish about us, our business, our market and our competitors. Overly enthusiastic opinions or estimates regarding our business or future stock price can result in volatility if performance does not meet such estimates. In addition, if one or more securities analysts initiate research with an unfavorable rating or downgrade our Class A Common Stock, provide a more favorable recommendation about our competitors or publish inaccurate or unfavorable research about our business, our Class A Common Stock price will likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and demand for our securities could decrease, which in turn could cause the price and trading volume of our Class A Common Stock to decline.

Future sales of Class A Common Stock in the public market could cause our share price to decline significantly, even if our business is doing well.

The market price of our Class A Common Stock could decline as a result of sales of a large number of shares of Class A Common Stock in the market or the perception that these sales could occur. There are a total of 179,432,117 shares of Class A Common Stock outstanding as of November 3, 2023 (excluding the last tranche of 2,192,687 Earnout Shares that may be issued, unvested RSUs and options to purchase Class A Common Stock outstanding under our employee benefit plans, and any equity awards that may be issued in the future under the 2021 ESPP and the 2021 Plan).

Certain holders of shares of our Class A Common Stock have rights, subject to some conditions, to require us to file registration statements for the public resale of their Class A Common Stock or to include such shares in registration statements that we may file for us or other stockholders. We have filed a registration statement on Form S-3 to register the resale of shares of our Class A Common Stock by certain of these holders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the market price of our Class A Common Stock to decline or be volatile. These holders and our affiliates may also use Rule 144 to sell their shares of our Class A Common Stock.

We have filed registration statements on Form S-8 under the Securities Act to register shares of Class A Common Stock reserved for future issuance under our equity compensation plans. The Form S-8 registration statements became effective automatically upon filing, and shares covered by the registration statements became eligible for sale in the public market, subject to Rule 144 limitations applicable to affiliates. Subject to the satisfaction of applicable vesting restrictions, the shares issuable upon exercise of outstanding stock options, vesting of RSUs and other awards will be available for immediate resale in the public market. Sales of Class A Common Stock pursuant to the exercise of registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the trading price of our Class A Common Stock to fall and make it more difficult for investors to sell shares of our Class A Common Stock at a time and price that they deem appropriate.

Sales, short sales, or hedging transactions involving our equity securities could adversely affect the price of our Class A Common Stock.
113

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

PeriodTotal number of shares purchased (1)Average price paid per share (2)Total number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under the plans or programs (3)
July 1 - July 31, 20231,277,809$5.051,277,809$23,962,148
August 1 - August 31, 2023611,457$6.48611,457$19,997,938
September 1 - September 30, 20231,581,449$6.311,581,449$10,019,298
     Total
3,470,715$5.883,470,715$10,019,298

(1) Represents the number of shares purchased pursuant to our publicly announced share repurchase program as of the trade date, not the settlement date. All of these shares were purchased pursuant to a Rule 10b5-1 trading plan.
(2) Excludes brokers’ commissions and the 1% excise tax mandated by the Inflation Reduction Act on share repurchases.
(3) On February 27, 2023, we announced that our board of directors approved a 12-month share repurchase program with authorization to purchase up to $50.0 million of our Class A Common Stock (exclusive of brokers’ commission and expenses), or the Share Repurchase Program. On November 6, 2023, we announced that our board of directors approved an extension of the Share Repurchase Program to run through February 28, 2025 and an increase to the total authorized amount under the program of up to $100.0 million resulting in a total authorized amount of up to $150.0 million (exclusive of brokers’ commissions and expenses) of our Class A Common Stock. The Share Repurchase Program does not obligate us to acquire any specific number of shares of our Class A Common Stock. Repurchases under the Share Repurchase Program have been authorized through February 28, 2025, but the program may be modified, suspended, or terminated at any time at the discretion of our board of directors.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Securities Trading Plans of Directors and Executive Officers
During our last fiscal quarter, no director or officer, as defined in Exchange Act Rule 16a-1(f), adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408(a).


114

Item 6. Exhibits.
ExhibitDescription
2.1†
3.1
3.2
4.1
31.1*
31.2*
32.1* **
32.2* **
101.INS*
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (embedded within the inline XBRL document).
*
Filed herewith.
**
These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.                                    
†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 exhibit will be furnished to the SEC upon request.
115

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Rover Group, Inc.
Date: November 8, 2023
By:/s/ Charlie Wickers
Name:Charlie Wickers
Title:Chief Financial Officer
(Duly Authorized Officer)
116

Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Aaron Easterly, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Rover Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 8, 2023
By:/s/ Aaron Easterly
Aaron Easterly
Chief Executive Officer



Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charlie Wickers, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Rover Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2023By:/s/ Charlie Wickers
Charlie Wickers
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Rover Group, Inc. (the “Company”) for the quarter ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Aaron Easterly, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: November 8, 2023By:/s/ Aaron Easterly
Aaron Easterly
Chief Executive Officer
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Rover Group, Inc. (the “Company”) for the quarter ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charlie Wickers, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: November 8, 2023By:/s/ Charlie Wickers
Charlie Wickers
Chief Financial Officer