Q1 2020 Earnings Call
Thank you.
Your next question comes from Ron Josey with JMP. Please go ahead.
Great. Thanks for taking the question appreciate the commentary on what you're seeing intra quarter, Matt maybe just bigger picture as you add record partnered restaurants, and you've you know fixie issued with non partner or most of the not part of restaurants, you just help us understand in this environment why why would a partner why wouldn't the restaurant want to be a partner in these times just given overall demand and.
And what you as a platform are doing to help drive demand for that for the business.
Thank you.
Yes sure Rob.
Yes.
Restaurants haven't really hard.
Because they have to close are dying dine in they lose a ton of sales. So so you're exactly right anything that will increase there.
There there their gross sales through delivering a pickup really is what there really is what they're looking for so I don't there's no reason not to to sign up right now and we have a very flexible pricing programs a lot of restaurants to come at it come on the platform enough on a variety of.
Ah exposure levels.
But what we're really doing is where we're taking.
All the all the profits that we're making and we outlined a clearly in a letter on we're just driving it through the platform unless there's many ways. We can do this we can increase our advertising.
Just to get more new diners we are.
We are well one thing we found specifically how beneficial is that we're driving promotions across our promotional platform.
With with higher than normal minimums to increase the average order size them or where messaging and around.
Support your restaurants, but also order lunch tomorrow, when you order dinner Tonight and things like some bundling tactics that we're using is really driving much higher ASV, which is driving more diners are more dollars to the restaurants and then we're supporting that bye bye augmenting.
Their promotions and and and the way we've positioned the current the $10 off the 30 is it we are front loading the rewards for the restaurants and then we're asking them. If they want to continue the campaign on their own dime overtime or potentially modified to something that they're more comfortable so by by funding rewards.
To attract new diners and increased frequency is really our primary tactic and trying to help restaurants by driving as much sales and Adam do you want to add anything.
Yes, thanks, so Ron just to be clear.
Matt outlined kind of all the all the rationale, but you know I don't know became across in the in the latter clearly not but we're seeing unprecedented sign ups on that on the independent restaurant side right now.
Really across the board not just independents enterprise as well.
We had we had more restaurants, new restaurants go like as partners in March and April than we did in the last six months in 2019.
I think it's a combination to be things you know one is the demand kind of that you're alluding to.
But then also I think our you know our investments in the Salesforce and that restaurant team that we built up towards the end of last year.
Through kind of January February put us in a place to convert a lot of weeks.
You know two to a life partner restaurant I mean at one point or we had we had so many inbound leads that are that we weren't making outbound calls we were just getting as many inbound leads on the platform as quickly as possible. So your point that you had to be the demand from a little restaurants side is very strong.
[noise] Super helpful. Thank you.
Next question comes from a Ed Your Maam. Please go ahead.
Hi, This is abbey on Fred.
Wondering I'm as you cut off the non partners restaurants for a period of time, what did you see them converting to partnered or whether it's the dynamic there.
Yeah, I mean <unk> thanks for the question.
You know by by as Matt mentioned kind of by mid February I think we had most of the restaurants or it would likely be grubhub customers at some point on either in a partner state or non partner. So by definition most of the restaurants that we were signing.
I'm in March and April were non partnered restaurants, but I think it's important to note that there is a you know from a restaurant value perspective.
You know, there's a massive a week right from becoming a non partner to a partnered restaurant in terms of value that we bring to the table, Matt talked earlier about how valuable it is to be a partnered restaurant for us with Grubhub and kind of all the things that we do but you know at the end of the day. We're also talk.
Something about many multiples of volume because of our ability to to present or the that partnered restaurants at a much much lower price to diners and the non partnered and I think Matt has a couple of thoughts as well.
Yeah Abbey things I think your question was likely targeted towards independent restaurants, but I just want to chime in with a bit of enterprise pre cobot, we had a lot of enterprise restaurants on a non partner basis, because we're really showing the brands how effectible platform could be.
Immediately with the crisis.
We had conversation with all every enterprise brand in fact, right now save one or two a we've either already signed or actively negotiating with every brand I didn't make sense with our platform and the enterprise brands are really pushing hard even the ones that were just non partners.
A few months ago.
They are pushing hard to get as many of their locations lives as fast as possible. Obviously, the master services agreement them I say is first and then you have a bunch of work to convince franchisees.
That whole process has been accelerated and these brands are very focused on getting as many locations and and getting integrated in fact, we signed a chipotle late in the past few weeks and they went live immediately across the country on a non partnered a place and pay methods because they wanted that volume as fast as it could and just now are finishing our Pos immigration.
Other partners.
Or non.
And the other enterprise brands that were non partner that have recently signed 711 cracker barrel play a tropical.
Landry's Martin's dairy Queen Big Big brands.
That were.
Varying phases of signing go platform have all just accelerated and are now partners.
Great. Thank you [noise].
Okay, and we have a question from Brian Nowak with more of Morgan Stanley. Please go ahead.
Thanks for taking my question I've I've to just the the first one mads just sort of as you look at how the industry has changed a lot from from coded and kind of all the thing that's gone in the last couple of months talk to us about how the we're looking at 2021, what do you think sort of one or two of the biggest structural industry.
Changes you think or the way you guys are going to operate I'm going to change coming out of all of Cowen everything you've learned so far.
And then secondly on the macro front talk to US about how you think about the the risk of consumer expenditure weakening in the back half and the fact that you know in some cases food delivery still relatively expensive to other alternatives. The is it a risk to the back half or how do you how do you sort of compartmentalize that.
Sure, Brian I'll take the first one and.
On the Adams et cetera. So.
Looking forward.
[music].
I think one huge take away is.
Delivery.
Specifically is front and center.
For restaurants has been growing over the past five years.
Every every brand.
As a strategy has a plan and they're looking to adopt with coded immediately.
A bit slipped and ER and delivery and platforms are are here to stay there's no question about it. It's it's a it's a major part of revenue. It's it's a it's a sole revenue right now, but clearly it will it will pass and it will continue to be a very major part you're saying.
Millions of diners try delivery platforms for the first time as are locked inside their houses and I think you're seeing restaurants realize the benefits we bring in terms of higher efficiency better products tighter integration for us at least a really strong loyalty platform.
So I think.
You are seeing the realization that that.
Our industry is extremely important.
And it and it will be forever I think that's that's also a lot of the impetus for the the political.
Activity that I mentioned the beginning.
Although I will call. So I think that's.
That's here in terms of how we're going to be operating we just need to address or concerns.
We need to make sure were strong and good partner to build and support restaurant growth over the long term, which we feel we have been doing and I continue to invest and obviously with our short term.
<unk> expenditures on on driving demand, but also on the platform and the products and services were providing I think from a driver perspective.
We're also being very cognizant of the experience that we are.
Providing our drivers there they're concerned they're scared a they're having to now in Manhattan bike around this empty streets and risk, there and safety and security and so making sure that we're treating them.
As a as a not just a partner, but don't you know a customer someone who is really integral to the value provide.
We have we've introduced a lot of support measures for for our drivers to really take care of them and and and be a positive partner and I I'm really proud to see those come out and we are absolutely going to continue.
Continue that also Adams your thoughts on the macro.
Yeah, and before I start just plus one on the drivers a you know for those who are listening. We super appreciate everything you guys are doing you know in terms of the [laughter] in terms the macro [noise].
We talking the letter you know there's definitely you know there's definitely a lot influence is right on the I.E.
You know you're talking about the recession the back half, but I think it's helpful to think about what's happened over the last few months.
You know you know in terms of book eight you know the average order size is way higher which means a lot of folks are using the platform in ways that they have never used it before right and so they're ordering more for families either ordering on more occasions and so.
That's changed over the last couple of months. We've also seen a lot more new diners flood into the flood onto the platform.
I don't think we went to a lot of detail in the letter, but you know the you know our new diner numbers have been a you know even more robust and the order numbers in kind of March and April. So we're seeing you know you over the last couple of months, even millions of new diners trying grubhub for the first time.
And there were also seeing just just more use cases from our existing diners. So.
People are using had tried grubhub in different ways than they have ever used it before any more ways all positive rate and so as you're thinking out towards the future you know if any of that sticks right and we assume some of that will stick right. We assume that that people will or have enjoyed their XP.
Variants, and we'll continue to to use or somewhere you indications will use us to order more for families et cetera.
And so you know we assume some of that will stick around.
I think you know that will be balanced out by a you know so your point discretionary income and unemployment I think we've always had the you know the I think there's two sides of that argument in terms of the recession right. One is.
One is with less discretionary income.
You know people go to restaurants, less right, but on the other side or on the flip side.
You know ordering in a if they use a cheap replacement for a cheap replacement for going out a in so I think those two kind of you know potentially balance each other out and show you know I think we'll see a you know how kind of it all comes out a in the wash overtime.
Great. Thank you both very helpful.
Next question comes from Heath, Terry with Goldman Sachs.
Great. Thanks.
Matt kind of a higher level question and I guess you touched on this.
In some ways with some of your comments about the a about the political efforts that you've you've got but you know I'm I'm curious how much thought you you give or you know whether whether it's something that are that you guys are able to really affect any change on when it comes to sort of the narrative.
That's out there about grubhub and the you know the sort of delivery industry in general. It can do you guys are providing an essential a central service. Your you'll have have been a lifeline to a lot of the the restaurant industry and yeah. Maybe it's just for those of US who are a little bit to tied up in social media, but the narrative around.
Your business seems to be a lot more a lot more negative.
Than at least the reality that that I think a lot of us see.
People posting their grubhub bulk bills Andy.
The the.
Issues, obviously that have been raised Eni in San Francisco in a very very direct way is there anything that you can do or are there any way that you see.
Just sort of recast the narrative of you, particularly given the fact that you're essentially operating it at breakeven during this time, you're not making not making any money off this this crisis and understandably so.
Just sort of recast the narrative around around Grubhub and the you know the work that you are drivers are teams are doing.
Yeah, Great question, and you said essentially breakeven I think we're literally there at this point I the.
It's a it's a tricky to tricky question I think that restaurants are in a lot of pain I think that people see their local restaurants in their grade there close.
The majority want everyone to do as much as possible.
Which we are on we are.
Lending over backwards deferring revenue, giving it giving profitability.
We are we're doing everything we can imagine to help restaurants, because at the end of the day.
Restaurants businesses harvests without the restaurants, we don't have a platform.
So it is frustrating.
When you when you see a lot of the social media post that that are inaccurate and a lot of them are our politically coordinated.
But I think about people forget and the one thing that that we're going to try to do better on.
To highlight that.
The costs.
Our real.
If grubhub or any or any platform didnt deliver the restaurant.
I'd have to effectively paid a $5 a delivery person a $5 is now about 20 plus percent you have credit card fees with or without US you have the customer support with it but that is fraught with and without.
You are building up to this and this this cost basis.
Where and you guys know because you you.
Scour the filings I mean, but we're making about a person the half ish or on the order, we're not making the 30% that were being tagged with.
And that's really what the local municipalities are.
Primarily responding to is they here at 30% take rate and they see that's all going in our Oh wallet and so I think doing a better job of educating.
Both you elected officials as well as the general population is.
Important in the weeks to come.
But at the end of the day.
There's always going to be a pressure from organized restaurant groups to.
To decrease costs for restaurants, which is which is very reasonable.
We love to decrease our cost as well so I think it's a push and pull.
And unfortunately, it's a crisis situation and these tensions are more heightened.
We're going to really focus our efforts on educating and making sure people understand the valuable role, we play in ecosystem and and how it if it wasnt grub the restaurants are still have to pay.
You know real costs in order to deliver food.
Great. Thanks.
Next question comes from Ralph Schackart with William Blair.
Oh excuse me good morning.
I appreciate the commentary about inter quarter trends wonder if you could maybe expand on that.
Because basically you know what you're seeing perhaps with some of the done or activity, maybe focus a little bit on New York a possible <unk> of those orders come back maybe what you're seeing.
It is perhaps trended through may.
Yeah, Thanks, Rob Oh, you're doing well.
Yeah. So I I mean look I think you know we kind of laid out in the letter out how things are going I think if you if you back up to our pre earnings letter that we published on April 13, we kinda, we kind of gave a view into a the momentum we were seeing in to that point, we were seeing.
Kind of 10% year over year growth.
Not he the you know in the letter or this letter that went out last night you know we talked about how April ended up at a 20% year over year growth. So that obviously implies a you know quite a bit of acceleration through.
Through the back half half of April and a you know we haven't seen it a we haven't seen it slowed down at all and so that that increase in orders is really a reflection of a combination of a lot more new diners that I talked about earlier Advertisings work is is way more efficient, but it's not about the advertising there.
As you know a bunch of latent demand that Ah that Oh, you know, we're seeing on the platform, but also those new diners coming back more frequently and more quickly and then also our existing diners ordering a lot more frequently I think you know another another point that's important to make is the you know is the average.
The order size point, where a you know we talked about a letter essentially last year at this point, where we're at about 32 Bucks in order and April was at $40. In order. So are you can do the math, if you're increasing average order size by 25% and and orders by 20%.
I you know you're getting a gross food sales growth of closer to 50%. You know we you know we talk there's a lot of different scenarios from here you know I think we're trying to be a.
Hand, it in the letter a lot depends on kind of the answers to the question that you know the first question that we got in the call kind of how did what is reopening look like.
When do markets reopened how do they reopen what happens to two restaurants do they choose to keep their dining rooms closed or the opening them. You know is there you know is there a second is our second wave.
A you know where where there's more shelter in place I think a lot. We don't know so I think we were just trying to be clear in terms of a of where we where we are.
I think from a.
You know from a profitability perspective, I think you know you guys know the models pretty well.
You know we are we are actively targeting that you know as Matt said kinda that that 5 million dollar or you know virtually no cash flow for the second quarter to healthy ecosystem, but if we were just going to you know if we were just operator model with with a 25% higher average order size 21.
Sent more orders and essentially the same infrastructure that we had from the first quarter you would imagine that at a lot of that could drop to the bottom line. It so significantly greater than what we saw in the fourth quarter or the first quarter, which is you know is a good thing because we have more money to spend behind supporting Iraq.
Shrontz you know in in terms of New York, You know I'll give you a couple of thoughts and then a you know that I'll, let Matt Matt add on I mean I think.
Well <unk>, New York was certainly hit.
You know more than any other market in the U.S. you know in terms of the depth of of the impact of the virus. There and also just from a market perspective, where a you know we saw a lot of consumers you know, leaving leaving the city.
I think you know the pattern in New York has been similar you know from my perspective has been similar to other markets and that.
There was a debt.
Diner demand started to come back kind of first in early April and then restaurants started taking advantage of that demand by opening.
Take out only you know menus or take out only facilities and so we saw you know diners kind of trough diner demand kind of trough in into beginning April and restaurants kind of dropping like the second we gave rolling since then it's been steadily climbing we think it's going to come back.
You know we're now in New York at about 75% Oh, you know in terms of total restaurants. They are available on the platform you know which is up from 50. So we think it's going to keep going up from here as more people come back and lifetime, a normalize a little bit.
So that's that's kind of what we're saying I don't I don't know Matt had a few extra thoughts about New York.
Well actually you you produce unless someone is it really what I would just underscore that.
Harder hit than any other us market super reasonable it takes longer to come back we definitely saw the.
Debt to be a way larger.
In total also as a percentage than any other market, but just like every other market me solace in Detroit yourselves in Philly when the hot spots cleared up gift they've recovered and then in many cases, there over indexing versus pretty cold. It. So I don't know if all over the next one I'm expecting that in New York for sure.
But we absolutely expect it to recover overtime and we are seeing that book.
Consumer ordering patterns and also as Adam said with the with the restaurants coming back on line and we're very.
[noise] happy to see more restaurants come back online I was I think we were very afraid that this would because it really doesn't make some of the neighborhood places and now we're not out of the whats yet, but we are we're we're on the right track, which is good to see.
Great. Thanks, Matt Thanks.
Next question comes from Maria Rips with Canaccord.
Hi, good morning, and thanks for taking my questions.
I just talked about your decreased slightly from a different angle given what's going on in the industry today and looking out a few years, how would you think about peak rakestraw take rate structure for the industry.
Obviously with more competition, but also with more demand coming in so how do you think whether your current take rate is sustainable and what would the model look like there was pressure.
Sure So let me.
Let's take a step back and and and maybe outline our philosophy on Russia pricing, which all isn't all that should be more clear them. So from the beginning we we only charge for demand.
Oh, Yeah, we started out not doing online orders, but actually doing telephone orders and listing our phone numbers and then routing until two restaurants for numbers as a way to track demand because we were able to.
Is it really represent restaurants online and help them drive.
Sure I have to man that evolved overtime online orders you guys know the rest of store so the way our pricing is a.
Generally 10% to process online orders and then restaurants pay us incremental for a more exposure more CRM Walmart emails loyalty programs. They pass more if they want us to deliver the food versus them. They pay us more to have access to the corporate infrastructure. So it's a really oh.
Look heart method, Oh, Wow, I'm charging restaurants for only what they want.
Clearly our competition came in as logistics platforms and charge, 30% blanket food in order to access any services because they needed to fund the driver every single time.
And so I think that you have a disparity in pricing models now.
That is not properly understood.
Hi.
Oh, frankly restaurants or.
The the elected authorities. So your question, where where do I think take rates evolve overtime I think we have the right plate pricing model.
I think that all pricing models will ultimately involved to our platform. We're.
Executing a digital order is effectively a commodity for years, we had a micro site program.
For example, I think you guys might remember, we well we got called out on it and improperly said we were cybersquatting absolutely wasn't plays we were listing websites on behalf of restaurants that couldn't do it themselves as before there was a wide variety of third party platforms that would allow a small businesses to do there and when.
Thats very inexpensively, we would do a free website for them.
We have all their data we would execute borders across that web site the restaurant with what actually promote that web site.
We would not charge for those orders.
Because it was it was a philosophical definition for us.
That restaurant drove that orders that order, there's no reason for that Restauranteur payoffs for demand for that we're now the restaurant would pay a credit card transaction fee because that's again our cost that's a pass through if we would deliver that order the restaurant would pay us or the delivery about order, but not for our marketing.
And so thinking of it in that context, as a really good way to evaluate pricing going forward, especially now there's so much more attention on our business model them away. We we charge restaurants restaurant on our platform is free to is free to pay us a very small amount or a very large amount depending on the exposure and the investment.
They want to make in their business and I think that that is the only logical.
Outcome for pricing models in our industry I think the a one size fits all model will not work and you're seeing a huge amount of oh frustration anxiety around that currently when my industry is the only ability equals four restaurants to make money.
During this crisis.
Thank you so much for the Coleman.
Okay, and we have a question from Deepak Mathivanan with Barclays.
Hey, guys. Thanks for taking the questions I'm not wanting to ask about <unk> business profitability why is 5 million EBITDA at the right level, you're looking to manage you know given the opportunity to capitalize on new consumer behavior and potentially shifting adoption curve at this time and should we expect you to so I don't think about EBITDA levels.
Consistently at similar level just on the back half of 2020 as well and then second question in the shareholder letter you noted that you're not seeing they in fact of competitive activity you know that just because secular demand is strong how are you assisting those trench. Thank you.
Yes, Thanks, Deepak I. This is Adam I'll take the EBITDA question. So.
It look it's you know as I tried to walk through earlier off from an EBITDA perspective or from profitability perspective, there's a lot of tailwinds.
This quarter, specifically right so.
You know if you just take our business and you know letter we talk about going from 30 to 40 I think in the first quarter. You know we were at 34 and a half so even if you just talked about a $6 average order size increase right. Our come our take rates are a capture rates from restaurants haven't really changed when the first quarter. The second so.
All of that rate drops to the bottom line.
Our operating cost really haven't gone up.
Right. So you know from a driver we haven't spent a long time talking about a driver costs are fulfillment costs, but there has not been a dramatic change or dramatic increase from the first quarter to the second quarter in fulfillment costs and our advertising if anything has been a you know some way more efficient and the second quarter.
And then you add on top of that the you know the 20% increase and.
You know orders that we had in you know in April compared to the year ago.
Which you know if you if you kind of do the math, you'll see that we have a sequential increase from the first quarter and you're talking about more orders at a higher average order size, especially in same infrastructure with the same pricing. So a lot of tailwinds for for EBITDA I think you know as Matt and I, both talked about and yeah.
This call and the letter.
You know look the EBITDA is not a you know.
It does not as important right now is supporting our ecosystem.
You know our restaurants are challenged.
You know their business models have been turned upside down.
And you know we became much better use of our cash flow right. Now then to take advantage of a you know the east kind of massive tailwinds for EBITDA is to kind of reinvest that into driving more sales for for those restaurants, and we think we can drive you know that and we talked about this in a letter we think with this spend.
We can drive an extra $150 million plus of gross food sales to our restaurant partners and we think that that you know at this point in time is the right decision right. If we you know if we didn't if we weren't spending that extra money in driving that extra $150 million in grocery channels you know our EBIT.
I would be a lot higher and I think we're trying to be transparent.
In terms of how this is affecting our p. now, but we are you know we've chosen that kinda five to kinda you know be around the ER in you know investing substantially all a you know of our cash flow because you know we have some additional.
Capitalized cost. So you know you're talking about a cash flow of essentially zero at that point, but we think it's valuable because you know we want to drive our restaurant partners more more orders. So they can keep their employees are employed longer and we can we can drive more volume to our drivers. So it's about it.
Morning ecosystem a at this point as opposed to you know taking advantage of you know of the pandemic and dropping a bunch of.
EBITDA for the bottom line this quarter.
You know in terms of the competitive.
Dynamics or that you asked about I mean, you know if it's possible that some of the you know it's possible that some of the impact is just you know the macro environment, but when we look at the diner behavior. You know, we're not seeing that promiscuity that we've seen the pass it to the extent that we can.
You know, we can see it Oh, we're seeing better frequency, we're seeing better retention rates and.
And we're seeing cheaper new diner acquisition. So all the things that we would typically look at to judge whether or not we are seeing headwinds from from competitors, we're not seeing and Ah you know were generally seeing that and in all of our markets. A you know we did talk about New York is being a little bit of unique situation, but not.
From a competitive standpoint, it's from a macro standpoint, where I'd just we've seen more restaurants closed city now that's turning around and a you know we think that New York overtime will look you know just like these are just like the other markets and was on for a long time, we think that you know.
You know the demand for delivering take out in New York will eventually eclipse, where we are now but you know it you know we see a week.
As we have no further questions at this time I will now close the call. This concludes today's conference call you may now disconnect.
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