0001826018-22-000102.txt : 20221110 0001826018-22-000102.hdr.sgml : 20221110 20221110165644 ACCESSION NUMBER: 0001826018-22-000102 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 89 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221110 DATE AS OF CHANGE: 20221110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROVER GROUP, INC. CENTRAL INDEX KEY: 0001826018 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39774 FILM NUMBER: 221378229 BUSINESS ADDRESS: STREET 1: 720 OLIVE WAY, 19TH FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: (888) 453-7889 MAIL ADDRESS: STREET 1: 720 OLIVE WAY, 19TH FLOOR CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: Nebula Caravel Acquisition Corp. DATE OF NAME CHANGE: 20200924 10-Q 1 rovr-20220930.htm 10-Q rovr-20220930
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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, 2022
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  ☒   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 183,753,167 shares outstanding of Class A Common Stock, par value $0.0001 per share, as of November 4, 2022.


Table of Contents
Page
5
Item 1A.
2


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,” “intend,” “target,” “project,” “consider,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” 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:

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 Russia’s invasion of Ukraine 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;
general macroeconomic and geopolitical conditions, including other health-related events, political instability, sustained levels of increased inflation, rising interest rates, significant foreign currency fluctuations, strengthening of the U.S. dollar, lower consumer confidence, depressed consumer spending, monetary and fiscal policy changes and stock market volatility, and geopolitical conflicts and economic downturns, and their impact on consumer spending patterns, demand for and pricing on our platform, and our business, operating results and financial condition;
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 potential 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, average booking value, booking mix, revenue and expenses;
our ability to retain existing and acquire new pet parents and pet care providers;
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, acquisitions and international markets;
our offering expansion initiatives and market acceptance thereof, and the effect of these investments on our results of operations;
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;
the success of our marketing strategies and investments;
our anticipated investments in new products and offerings, 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 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;
3

seasonal fluctuations in bookings, gross bookings value, average booking value, revenue, marketing, operating expenses, net income (loss), and Adjusted EBITDA;
our future capital requirements and sources and uses of cash;
the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs;
changes in applicable laws or regulations, including with respect to the classification of pet care providers on our platform, taxation, privacy and data protection;
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 and data protection, 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;
the increased expenses associated with being a public company;
our ability to maintain and protect our brand;
our ability to effectively manage our growth and maintain our corporate culture;
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;
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 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.

4



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
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.
Any further and continued decline or disruption in the travel and pet care services industries or an economic downturn resulting from current or future pandemics or other health-related events, sustained levels of increased inflation, rising interest rates, lower consumer confidence, depressed consumer spending, geopolitical instability or economic uncertainty, 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 profitability.
Our historic revenue growth rate has slowed 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.
Online marketplaces for pet care are still in relatively early stages of growth and if demand for them does not continue to grow or grows slower than 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.
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.
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.
Actions by pet care providers or pet parents that are criminal, violent, inappropriate, or dangerous, or fraudulent activity, may undermine the safety or the perception of safety of our platform and materially adversely affect our reputation, ability to attract and retain pet care providers and pet parents on our platform, 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.
5

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.
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 reputation, 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 made by pet parents and payments made to pet care providers on our platform. If these third-party payment service providers become unavailable 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, our usage or brand recognition could decline and our business, financial results and operating results could be materially adversely affected.
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.
The failure to successfully execute and integrate acquisitions could 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 an effective system of internal control over financial reporting which could result in a misstatement of the accounts or disclosures in our financial statements, that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected or cause us to fail to meet our periodic reporting obligations.
We may face litigation and other risks as a result of the material weakness in the internal controls of our financial reporting.
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 will experience dilution in the future.
6

Part I - Financial Information
Item 1. Financial Statements
ROVER GROUP, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
September 30,
2022
December 31,
2021
Assets
Current assets
Cash and cash equivalents$65,518 $278,904 
Short-term investments169,137  
Accounts receivable, net49,553 26,023 
Prepaid expenses and other current assets7,937 6,113 
Total current assets292,145 311,040 
Property and equipment, net19,981 20,874 
Operating lease right-of-use assets19,396 21,495 
Intangible assets, net7,389 4,469 
Goodwill37,119 33,159 
Deferred tax asset, net1,183 1,477 
Long-term investments31,038 4,292 
Other noncurrent assets300 348 
Total assets$408,551 $397,154 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$5,085 $5,043 
Accrued compensation and related expenses6,469 6,600 
Accrued expenses and other current liabilities21,562 3,021 
Deferred revenue9,393 3,077 
Pet parent deposits38,844 28,269 
Pet care provider liabilities3,790 10,894 
Operating lease liabilities, current portion2,311 2,433 
Total current liabilities87,454 59,337 
Operating lease liabilities, net of current portion22,927 25,198 
Derivative warrant liabilities 19,943 
Other noncurrent liabilities1,853 84 
Total liabilities112,234 104,562 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000 shares authorized as of September 30, 2022 and December 31, 2021; no shares issued and outstanding as of September 30, 2022 and December 31, 2021
  
Class A common stock, $0.0001 par value, 990,000 shares authorized as of September 30, 2022 and December 31, 2021; 183,567 and 177,342 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
18 18 
Additional paid-in capital645,583 612,680 
Accumulated other comprehensive (loss) income(1,708)220 
Accumulated deficit(347,576)(320,326)
Total stockholders’ equity296,317 292,592 
Total liabilities and stockholders’ equity$408,551 $397,154 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

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,
2022202120222021
Revenue$50,864 $35,153 $122,059 $71,831 
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)
11,607 8,036 29,976 18,494 
Operations and support7,425 4,199 19,265 9,916 
Marketing8,686 6,403 27,044 13,532 
Product development7,100 5,033 20,380 14,586 
General and administrative30,599 8,899 53,616 21,266 
Depreciation and amortization1,561 1,873 4,432 5,572 
Total costs and expenses66,978 34,443 154,713 83,366 
(Loss) income from operations(16,114)710 (32,654)(11,535)
Other income (expense), net:
Interest income1,287 19 2,084 28 
Interest expense(19)(1,534)(61)(2,933)
Change in fair value of earnout liabilities (71,318) (71,318)
Change in fair value of derivative warrant liabilities (12,261)4,579 (12,261)
Other expense, net(257)(116)(1,045)(194)
Total other income (expense), net1,011 (85,210)5,557 (86,678)
Loss before income taxes and equity method investments(15,103)(84,500)(27,097)(98,213)
(Provision for) benefit from income taxes(44)(36)172 280 
Loss from equity method investments(325) (325) 
Net loss$(15,472)$(84,536)$(27,250)$(97,933)
Net loss per share attributable to common stockholders, basic and diluted
$(0.08)$(0.73)$(0.15)$(1.64)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
182,493 116,597 181,309 59,825 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

ROVER GROUP, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net loss$(15,472)$(84,536)$(27,250)$(97,933)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments(164)(62)(389)(33)
Unrealized loss on available-for-sale debt securities(543) (1,539) 
Other comprehensive loss(707)(62)(1,928)(33)
Comprehensive loss$(16,179)$(84,598)$(29,178)$(97,966)
The accompanying notes are an integral part of these condensed consolidated financial statements.
9

ROVER GROUP, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(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 
Exercise of stock options and issuance of common stock
2,442 — 2,353 — — 2,353 
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 
Exercise of stock options and issuance of common stock
946 — 1,438 — — 1,438 
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 
Exercise of stock options and issuance of common stock
791 — 1,181 — — 1,181 
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.
10

ROVER GROUP, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)
(unaudited)

Redeemable Convertible
Preferred Stock(1)
Common Stock(1)
Additional
Paid-In
Capital1)
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance as of December 31, 202090,814 $290,427 30,398 $3 $53,909 $253 $(256,277)$(202,112)
Issuance of common stock from exercises of stock options
— — 470 — 666 — — 666 
Stock-based compensation— — — — 1,001 — — 1,001 
Foreign currency translation adjustments— — — — — 21 — 21 
Net loss— — — — — — (10,591)(10,591)
Balance as of March 31, 202190,814 290,427 30,868 3 55,576 274 (266,868)(211,015)
Issuance of common stock from exercises of stock options
— — 392 — 816 — — 816 
Issuance of common stock from net exercises of warrants— — 331 — — — — — 
Stock-based compensation— — — — 1,147 — — 1,147 
Foreign currency translation adjustments— — — — — 8 — 8 
Net loss— — — — — — (2,806)(2,806)
Balance as of June 30, 202190,814 290,427 31,591 3 57,539 282 (269,674)(211,850)
Conversion of redeemable convertible preferred stock to common stock in connection with reverse recapitalization(90,814)(290,427)90,814 9 290,418 — — 290,427 
Reverse recapitalization transaction, net of fees— — 32,721 4 213,455 — — 213,459 
Earnout liability recognized upon the closing of the reverse recapitalization— — — — (228,082)— — (228,082)
Reclassification of earnout liability upon settlement— — — — 33,010 — — 33,010 
Issuance of common stock from exercises of stock options
— — 2,019 — 1,856 — — 1,856 
Issuance of common stock from net exercises of warrants— — 448 — — — — — 
Taxes paid on net share settlement— — — — (6,719)— — (6,719)
Stock-based compensation— — — — 994 — — 994 
Foreign currency translation adjustments— — — — — (62)— (62)
Net loss— — — — — — (84,536)(84,536)
Balance as of September 30, 2021 $ 157,593 $16 $362,471 $220 $(354,210)$8,497 
(1) The shares of the Company's common and redeemable convertible preferred stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio of approximately 1.0379 established in the Merger described in Note 1.

The accompanying notes are an integral part of these condensed consolidated financial statements.
11

ROVER GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20222021
OPERATING ACTIVITIES
Net loss$(27,250)$(97,933)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock-based compensation14,025 3,142 
Depreciation and amortization9,634 10,815 
Non-cash operating lease costs2,065 1,490 
Change in fair value of earnout liabilities 71,318 
Change in fair value of derivative warrant liabilities(4,579)12,261 
Net accretion of investment discounts(523) 
Amortization of debt issuance costs 695 
Deferred income taxes(225)(309)
Loss on disposal of property and equipment30 17 
Loss from equity method investments325  
Changes in operating assets and liabilities:
Accounts receivable(23,480)(4,925)
Prepaid expenses and other current assets(753)(3,923)
Other noncurrent assets(10)(33)
Accounts payable(373)2,174 
Accrued expenses and other current liabilities17,799 2,069 
Deferred revenue and pet parent deposits16,807 21,658 
Pet care provider liabilities(7,104)3,603 
Operating lease liabilities(2,358)(1,637)
Other noncurrent liabilities132 124 
Net cash (used in) provided by operating activities(5,838)20,606 
INVESTING ACTIVITIES
Purchases of property and equipment(443)(564)
Capitalization of internal-use software(5,751)(4,602)
Proceeds from disposal of property and equipment2 19 
Acquisition of businesses, net of cash acquired(5,711) 
Purchases of convertible notes(1,310) 
Purchases of available-for-sale securities(252,282) 
Maturities of available-for-sale securities55,383  
Net cash used in investing activities(210,112)(5,147)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and issuance of common stock 4,972 3,339 
Redemption of stock warrants(7) 
Taxes paid related to settlement of equity awards(2,224)(6,719)
Proceeds from reverse recapitalization and related financing
 268,282 
Payment of deferred transaction costs related to reverse recapitalization
 (32,743)
Repayment of borrowings on credit facilities (38,124)
Net cash provided by financing activities2,741 194,035 
Effect of exchange rate changes on cash and cash equivalents(177)(15)
Net (decrease) increase in cash and cash equivalents(213,386)209,479 
Cash and cash equivalents, beginning of period278,904 80,848 
Cash and cash equivalents, end of period$65,518 $290,327 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes$45 $7 
Cash paid for interest7 2,511 
12

Nine Months Ended September 30,
20222021
NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchase of property and equipment in accounts payable and accrued liabilities$138 $ 
Right-of-use asset obtained in exchange for lease liabilities16 766 
Conversion of redeemable convertible preferred stock to common stock
 290,427 
Earnout liability recognized upon the closing of the reverse recapitalization 228,082 
Derivative warrant liabilities recognized upon the closing of the reverse recapitalization 22,032 
Reclassification of earnout liability to additional paid-in capital upon settlement 33,010 
Reclassification of certain derivative warrant liabilities to equity upon exercise
15,356  
Recognition of indemnity holdback liabilities upon acquisition of businesses1,563  
Stock-based compensation capitalized to internal-use software773  
The accompanying notes are an integral part of these condensed consolidated financial statements.
13

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Organization and Description of Business
Rover Group, Inc. (formerly known as Nebula Caravel Acquisition Corp.) and its wholly owned subsidiaries (collectively the “Company”) is headquartered in Seattle, Washington, with offices in Spokane, Washington and internationally in Barcelona, Spain. The Company has also hired employees for a possible second operations center in San Antonio, Texas. 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. (“Legacy Rover”). Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into Legacy Rover, with Legacy Rover continuing as the surviving entity and as a wholly owned subsidiary of Caravel (together with the other transactions described in the Business Combination Agreement, the “Merger”). On the Closing Date, Caravel changed its name from Nebula Caravel Acquisition Corp. to “Rover Group, Inc.” See Note 3—Reverse Recapitalization for additional information.
Impact of COVID-19
The ongoing COVID-19 pandemic continues to impact communities globally, including in the markets we serve, which in turn
impacts our business. Of particular importance is the pandemic’s impact on travel and the return of workers to their offices, as
well as the increasing adoption of remote and hybrid working arrangements, which could result in fewer bookings and higher
than average cancellation rates if the pandemic or permanent changes in working arrangements depresses travel or office
attendance.
The impact of the COVID-19 pandemic, including the resulting changes in travel and work behaviors, may continue to affect results in 2022 and beyond. The extent to which the pandemic will continue to impact the Company’s business, operating results and financial position will depend on future developments, which are highly uncertain, difficult to predict and beyond our knowledge and control. These may include but are not limited to the duration and spread of the pandemic, its severity, new variants and sub-variants, actions to contain the virus or treat its impact, the extent of the business disruption and financial impacts, and the magnitude and timing of such factors as economic and operating conditions.
Liquidity
The Company has incurred losses from operations and had an accumulated deficit of $347.6 million as of September 30, 2022. The Company has primarily funded its operations with proceeds from the issuance of redeemable convertible preferred stock, common stock and other equity transactions, proceeds from the Merger, and debt borrowings. As the Company continues to invest in expansion activities, management expects operating losses could continue in the foreseeable future. Management believes that the Company’s current cash and cash equivalents 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 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
14

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2021. The information as of December 31, 2021 included in the condensed consolidated balance sheets was derived from those audited financial statements.
For periods prior to the Merger, the reported share and per share amounts have been retroactively converted by the applicable exchange ratio with the exception of the authorized shares and shares reserved for issuance. See Note 3—Reverse Recapitalization for more information.
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 presentation of the Company’s financial information. The condensed consolidated results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period.
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 sheet and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions, include, but are not limited to, the capitalization and estimated useful life of the Company’s internal-use software development costs, the assumptions used in the valuation of common stock prior to the reverse recapitalization, the assumptions used in the valuation of leases, legal contingencies, and stock-based compensation expense. 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 and substantially all revenue is attributed to fees from pet parents and pet care providers based in the United States.
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, including U.S. dollars. Gains and losses on those foreign currency transactions are included in determining net loss for the period of exchange and are recorded in other expense, net in the condensed consolidated statements of operations. The net effect of foreign currency losses was $0.2 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, and was not material during the three and nine months ended September 30, 2021.
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.
15

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company’s ability to provide a reliable platform largely depends on the efficient and consistent operation of its computer information systems and those of its third-party service providers. Any significant interruptions could harm the Company’s business and reputation and result in a loss of business. Further, there has been evidence that the Company has been the subject of cyber-attacks, and it is possible that it will be subject to similar attacks in the future. These attacks may be primarily aimed at interrupting the Company’s business, exposing it to financial losses, or exploiting information security vulnerabilities. To management’s knowledge, no prior attacks or breaches have, individually, or in the aggregate, resulted in any material liability to the Company, 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 may exceed the insured limits set by the Federal Deposit Insurance Corporation. The Company reduces credit risk by placing cash and investment balances with major financial institutions that management assesses to be of high-credit quality and also limits purchases of debt securities to investment-grade securities.
For the three and nine months ended September 30, 2022 and 2021, no individual pet care provider, pet parent, or affiliate represented 10% or more of the Company’s revenue. As of September 30, 2022 and December 31, 2021, accounts receivable was $49.6 million and $26.0 million, respectively, and was comprised primarily of amounts due from payment processors who collected payment from pet parents on behalf of the Company. Accounts receivable settle relatively quickly, and the Company’s historical experience of losses has not been significant.
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 its revenue principally 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 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). The fixed percentage service fees are established at the time a pet parent or pet care provider joined the platform and do not vary based on the volume of transactions. A booking defines the explicit fee from which the Company earns its fixed percentage service fee. The creation of a booking combined with the terms of service establish enforceable rights and obligations for the transaction. A contract exists between the pet care provider and the Company upon the creation of a booking and after the pet care providers’ cancellation period has lapsed. Pet parents are considered the Company’s customers to the extent that they pay a fixed percentage fee up to a fixed dollar amount to the Company for the booking. Similarly, a contract exists between the pet parent and the Company upon the creation of a booking and after the pet care providers’ cancellation period has lapsed. Pet parents pay for services at the time of booking.
The Company considers the facilitation of the connection between pet 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.
From time to time, the Company issues credits or refunds to its pet parents or pet care providers as a result of customer satisfaction matters. Such amounts are and have historically been immaterial.
16

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 the 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.
Provider Onboarding Revenue
The Company earns revenue from non-refundable provider onboarding fees by completing quality assurance reviews of new pet care provider profiles and by arranging for 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 and background check.
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 stays 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 Topic 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.
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 the Rover Guarantee, and other direct and indirect costs arising as a result of transactions that take place on the Company’s platform.
Marketing

Advertising expenses were $6.3 million and $20.4 million during the three and nine months ended September 30, 2022, respectively, and $4.7 million and $8.8 million during the three and nine months ended September 30, 2021, respectively.
Equity Method Accounting

The Company’s non-marketable equity investments are accounted for using the equity method of accounting. The Company uses the equity method if it has the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. For investments accounted for using the equity method, the Company’s proportionate share of net income or loss based on the investee’s financial results is recorded in the condensed consolidated statements of operations
17

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
within loss from equity method investments. Equity method investments for which the fair value option is elected are measured at fair value on a recurring basis with changes in fair value reflected in earnings. See Note 6—Investments and Note 7Fair Value for more information.

Recently Adopted Accounting Pronouncements
The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as private companies, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as private companies, as indicated below.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities from an incurred loss methodology to an expected loss methodology. For assets held at amortized cost basis, the guidance eliminates the probable initial recognition threshold and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses are recorded through an allowance for credit losses, rather than a write-down, limited to the amount by which fair value is below amortized cost. Additional disclosures about significant estimates and credit quality are also required. The guidance is effective for the Company for the year beginning after December 15, 2022. The Company early adopted this standard on January 1, 2022 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.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance is effective for the Company for the year beginning after December 15, 2021. The Company adopted this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard did not have an immediate impact on the Company’s condensed consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The guidance is effective for the Company for the year beginning after December 15, 2023. The Company early adopted this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard did not have an immediate impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios. The guidance is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted this standard on January 1, 2022 and will apply the amendments of this ASU prospectively to any modifications or exchanges of freestanding equity-classified warrants occurring on or after the effective date. The adoption of the new standard did not have an immediate impact on the Company’s condensed consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU was issued to improve the accounting for acquired revenue
contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: (1) recognition of an acquired contract liability; and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination, whereas current GAAP requires that the acquirer measures such assets and liabilities at fair value on the acquisition date. The guidance is effective for the Company for the year beginning after December 15, 2023, with early adoption permitted. The Company early adopted this standard on January 1,
18

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2022 using the prospective transition method. The adoption of the new standard did not have an immediate impact on the Company’s condensed consolidated financial statements, but the new guidance has been applied to all business combinations completed after the adoption date.

In November 2021, the FASB issued ASU No. 2021-10 Disclosures by Business Entities about Government Assistance. The amendments in this ASU require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (3) significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for the Company for the year beginning after December 15, 2021. The Company adopted this standard on January 1, 2022 using the prospective transition method. The adoption of the new standard did not have an immediate impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements

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 will adopt this standard on January 1, 2023 using the prospective transition method. We do not expect the adoption of the new standard to have a material impact on the Company’s consolidated financial statements but will continue to evaluate the new standard in future accounting periods.

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. We do not expect the adoption of the new standard to have a material impact on the Company’s consolidated financial statements but will continue to evaluate the new standard in future accounting periods.
3. Reverse Recapitalization

On July 30, 2021, the Company completed the Merger and received net proceeds of $235.6 million, net of transaction costs of $32.7 million.

In connection with the Merger, the Company raised $268.3 million of gross proceeds from (1) the contribution of $128.3 million of net cash held in Caravel’s trust account from its initial public offering, (2) $50.0 million from the sale of 5,000,000 shares of the Company’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”), at $10.00 per share in a transaction exempt from the registration requirements of the Securities Act of 1933, and (3) $90.0 million from the sale of an aggregate of 9,000,000 shares of Class A Common Stock at $10.00 per share pursuant to the backstop subscription agreement with affiliates (and an assignee of such affiliates) of the sponsor of Caravel (the “Sponsor Backstop Subscription Agreement”).

Immediately before the Merger, all of Legacy Rover’s outstanding warrants were net exercised for shares of Legacy Rover common stock. Upon the consummation of the Merger, all holders of Legacy Rover common stock and preferred stock received shares of the Company’s Class A Common Stock at a deemed value of $10.379 per share after giving effect to the applicable exchange ratio based on the completion of the following transactions contemplated by the Business Combination Agreement:
the conversion of all outstanding shares of Legacy Rover redeemable convertible preferred stock into shares of Legacy Rover common stock at the then-effective conversion rate as calculated pursuant to Legacy Rover’s certificate of incorporation;

19

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
the cancellation of each issued and outstanding share of Legacy Rover common stock (including shares of common stock resulting from the conversion of Legacy Rover redeemable convertible preferred stock) and the conversion into a number of shares of the Company’s Class A Common Stock equal to an exchange ratio of 1.0379 (“Exchange Ratio”); and

the conversion of all outstanding vested and unvested Legacy Rover stock options into options exercisable for shares of the Company’s Class A Common Stock with the same terms except for the number of shares exercisable and the exercise price, each of which were adjusted using the exchange ratio of 1.2006.

No cash consideration was paid out to Legacy Rover stockholders as there was insufficient cash after Caravel common stockholders exercised their right to redeem shares for cash.
In connection with the Merger, the Company incurred $32.7 million of transaction costs. These costs consisted of underwriting, legal, and other professional fees, of which $14.5 million was recorded to additional paid-in capital and the remaining $18.2 million related to liabilities assumed from Caravel that were settled immediately after Closing.
The number of shares of Class A Common Stock issued immediately following the consummation of the Merger at July 30, 2021 was:
Number of Shares
Common stock of Caravel outstanding prior to the Merger27,500,000 
Less redemption of Caravel shares(14,677,808)
Sponsor Earnout Shares outstanding prior to the Merger6,875,000 
Less forfeiture of Sponsor Earnout Shares(1)
(975,873)
Common stock of Caravel (1)
18,721,319 
Shares issued in PIPE financing5,000,000 
Shares issued in Sponsor Backstop Subscription Agreement8,000,000 
Shares issued in Assignment Agreement1,000,000 
Merger and PIPE financing shares32,721,319 
Legacy Rover shares (2)
124,477,819 
Total157,199,138 
_______________
(1)Upon the Closing, 3,437,500 shares held by Nebula Caravel Holdings, LLC, the sponsor of Caravel and a greater than five percent stockholder of the Company (the “Sponsor”), vested, 975,873 were forfeited and 2,461,627 shares remained outstanding and unvested (the “Sponsor Earnout Shares”). At Closing, the remaining 2,461,627 Sponsor Earnout Shares were subject to vesting conditions based upon the occurrence of certain triggering events. At the close of trading on September 29, 2021, pursuant to the Business Combination Agreement and the achievement of Triggering Events I and II (as defined in the Business Combination Agreement), 1,969,300 of the Sponsor Earnout Shares vested.

(2)The number of Legacy Rover shares was determined from the 32,434,987 shares of Legacy Rover common stock and 87,496,938 shares of Legacy Rover redeemable convertible preferred stock outstanding, which were converted to an equal number of shares of Legacy Rover common stock upon the Closing, and then converted at the Exchange Ratio of 1.0379 to Class A Common Stock of the Company. All fractional shares were rounded down to the nearest whole share.

The Merger was accounted for as a reverse recapitalization under GAAP because Legacy Rover has been determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Under this method of accounting, Caravel was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Legacy Rover with the Merger treated as the equivalent of Legacy Rover issuing stock for the net assets of Caravel, accompanied by a recapitalization. The net assets of Caravel are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are those of Legacy Rover.

Legacy Rover was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

20

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Legacy Rover stockholders comprising a relative majority of the voting power of the Company;

Legacy Rover will have the ability to nominate a majority of the members of the board of directors of the Company;

Legacy Rover’s operations prior to the acquisition comprising the only ongoing operations of the Company;

Legacy Rover’s senior management comprising a majority of the senior management of the Company; and

the Company substantially assuming the Legacy Rover name.
4. Business Combinations
On June 15, 2022, the Company acquired all issued and outstanding stock of 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 includes 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 allocated as follows: $4.4 million to intangible assets (see Note 9—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 is mainly attributable to expected synergies and other benefits. The goodwill is not tax deductible. The intangible assets will be amortized on a straight-line basis over their estimated useful lives of three to five years.

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

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

Additional information existing as of the acquisition date but unknown to us may become known at a later time, such as matters related to intangible assets, goodwill, income taxes or other contingencies. In accordance with GAAP, if this occurs during the 12-month period subsequent to the acquisition date, we may update the amounts and allocations recorded as of the acquisition date.

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 would not have a material impact on the condensed consolidated results of operations.
5. Revenue Recognition
Contract Balances
The Company’s contract liabilities consist of deferred revenue. The changes in the Company’s contract liabilities were as follows (in thousands):

Balance at June 30, 2022$12,352 
Bookings and other45,885 
Revenue recognized(48,844)
Balance at September 30, 2022
$9,393 
Balance at December 31, 2021
$3,077 
Bookings and other123,566 
Revenue recognized(117,250)
Balance at September 30, 2022
$9,393 
21

ROVER GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Substantially all deferred revenue as of June 30, 2022 and December 31, 2021 was recognized as revenue during the three and nine months ended September 30, 2022, respectively.
6. Investments
Available-for-sale investments consist of fixed-income securities that are accounted for at fair value. Premiums and discounts paid on securities at the time of purchase are amortized over the period of maturity. The amortized cost and fair value of the available-for-sale investments and unrealized gains and losses were as follows (in thousands):
September 30, 2022
Amortized CostsGross Unrealized GainsGross Unrealized LossesFair Value
Marketable securities:
Commercial paper$46,665 $ $(59)$46,606 
Corporate securities39,386  (423)38,963 
US Government securities109,434  (983)108,451 
Asset-backed securities3,718  (41)3,677 
Agency bonds2,503  (25)2,478 
Total marketable securities201,706  (1,531)200,175 
Other investments:
Convertible notes1,310  (325)985 
Total other investments1,310  (325)985 
Total investments$203,016 $ $(1,856)$