Q2 2020 Blue Apron Holdings, Inc. Earnings Call
Second quarter 2020 earnings conference call and webcast.
At this time, all participants are in listen only mode.
A reminder, this call is being recorded today Wednesday July 29, 2021 replay purposes.
Slide presentation has been created to accompany today's remarks and can be accessed on the blue apron Investor Relations website.
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On this morning's call we have Linda in Lake Laski, Chief Executive Officer, a blue apron.
Tim Pendley, Chief Financial Officer.
Before I hand, handing the call over to the company will review the Safe Harbor statement.
Various state and instead the company makes during today's call about its future expectations plans and prospects <unk> constitute forward looking statements. The purpose of the safe Harbor provisions under the private Securities Litigation Reform Act 1995.
Actual results may differ materially from those indicated by those forward looking statements as a result of risks and other factors, including those described in the company's earnings release and actually see filings.
In addition, any forward looking statements represent the company's views only as of today and should not be relied upon as representing its views as of any subsequent date.
The company, specifically disclaims any obligation to update these statements.
During this call the company will be referring to non-GAAP measures, which are not prepared in accordance to generally accepted accounting principles. You are encouraged to refer to the earnings release and I see filings, where it has to find these measures. Its reviewed the reconciliation of these non-GAAP financial measures and the most.
Directly comparable GAAP measures.
In addition, reconciliations of certain forward looking non-GAAP measures referred to during this call is included in our earnings release, which is available on the company's Investor Relations website located at investors Dot Blue apron dot com under events and presentations.
With that I would like to turn the conference call over to Linda suddenly 'cause Laski aprons CEO.
Thank you Jamie good morning, everyone and thanks for joining us today.
Well they bring second quarter 2020 operating results reflect quarterly sequential and year over year double digit net revenue growth and also marked a return to top line growth sooner than expected.
Net revenue was up 10% year over year by 29% for core.
This strong topline growth in concert with our cost of cash management discipline put in place over the last two years.
<unk> positive adjusted EBITDA net income profitability as well positive operating and free cash flow.
I'm also extremely proud of our team for delivering variable margin results of 40.6% improved for both Q1 2020, and the second quarter of 24.
Even with the operational complexities and wage increases for felt that tender workforce created as a result at the cobot 19 pandemic.
Beyond the increase in net revenue as a result to changes in consumer behavior Cobot 19 pandemic.
Our second quarter performance also reflects continued progress on our three part returned to growth plan announced last August.
This plan is focused on three key priorities engaging more consumers to have our basket. That's my characteristic.
And Chris choice and flexibility to better integrated into our customers' lives.
Netscaler marketing spend efficiently.
Both the positive impact the brief and increased interest in cooking at home and the progress made against our growth plans are reflected in the quarterly sequential and year over year improvements in our key customer metrics, including orders per customer.
Her daughter value and average revenue per customer all of which reached levels that we haven't seen since prior to 2015.
Additionally, after increasing customers by approximately 25000 in the first quarter. We added another 20000 customers and the second quarter, reaching 396000, a quarterly customer our highest level the second quarter up late last year.
The customer additions in the second quarter came despite our deliberate decision to scale back marketing and promotional programs early in the quarter as we focus on building capacity at our fulfillment center to address increase the bad.
We believe our growth strategy.
Coupled with our focus on cost and cash management discipline is establishing the foundation for blue apron to achieve consistent revenue growth apart from the pandemic driven increases in demand that we had thing.
And we'll review our outlook for the third quarter in detail shortly but I went to highlight that while our growth expectations for the current quarter reflect continued higher levels of demand from the same curious in 2018 as a result, cobot 19 built into these expectations as the knowledge something you're doing a better job with regard to customer engagement and customer retention.
As such we're confident in our ability to continue to execute on our previously announced growth plan, even its consumer behavior may shift.
As we continue to see this demand we plan to continue to leverage our brand.
According to the April 2023rd Party ran survey, we commissioned by annually Lupron continues to lead them, you'll get category and brand awareness and sensors right.
As near term trends for cooking at home have improved and the longer term outlook for cooking at home. Similarly husband gathering momentum. We believe we have the REIT strategies in place to capitalize on this growing interest deliver net revenue growth in future periods.
One recent study indicates that nearly a third of the surveyed plan to cook at home, even as more even more now than they are excuse me even more now than they are one of them once the stay at home recommendations have been lifted.
Lets people spend more time in the kitchen, we believe we're well positioned to offer a product that caters to a range of experience levels balance for customer preferences for both health conscious Delta.
The improvements in our key customer metrics reflect increased demand from existing customers and do demand from new and reactivated customers seeking a variety of quality Neal options delivered into their homes.
We also consider continue to see heightened interest in our product innovation, such as our premium recipes that delivered elevated restaurants like experience at home or to put my plan for personal plan to customers.
As I mentioned in the last earnings call, we launch more products in the first quarter, a 2020 that in a prior quarter.
In Q2, we felt strong performance for these new products.
In particular, our premium offering where the das cooking techniques and more ingredient variety has been performing extremely well.
Customers ordering these premium price point opt in only recipes contributor to over one third of the 5% year over year increase in average order value realized in Q2.
Among customers surveyed in mid April who or premium meal intends to purchase was strong.
To purchase again was strong at 88 with that.
Further reflecting the expansion of our offering our customers both pre and during the pandemic had been requesting the ability to receive more meal or weaken or box.
To meet this need in June we began rolling out a.
Got a two person plan that customers.
<unk> Richmond facility that allows them to add a fourth recipe to their order.
This expansion has been performing strongly and we plan to roll it out all Richmond customer soon and then national customers in the third quarter.
Additionally, contributors to our growth in key customer metrics include engagement programs, such as our shop collaboration.
We recently concluded a four week partnership with award winning chef and restaurant trucking Hollingsworth with a focus on comfort foods that this summer.
We continue to see strong customer engagement with our shaft partnerships, we will be continuing this program to the fall with the collaboration with Schuff and TD personality attack.
These recipes will be designed to help reinvigorate our home chefs to kick off the fall season.
As we went into easy, but delicious recipes for our increasingly busy customer.
As we noted on our fourth quarter call our ability to meet the initial heightened demand early in the second quarter, what constraint to some extent as we wrapped up labor capacity.
Importantly, we have the equipment facilities food safety standards and supply chain sports higher than that.
Our biggest challenge as it has been for many has been securing an adequate labor supply, while maintaining a safe work environment for our team.
Throughout Q2, we were able to deploy multiple interim actions to quickly address the surge in demand, including typically are delaying some order closing some weekly offering cycles early discontinuing a subset of menu offerings, reducing promotional and marketing activity and delaying the introduction of some of our new product initiatives.
Well labor availability remains challenged by among other things reduce public transportation and logistics around childcare, we believe the labor pool, and our Linden New Jersey in Richmond, California, fulfillment center will be sufficient to meet our projections.
As we were able to ramp up capacity during the second quarter I'm happy to note beginning in June we began to reintroduce additional variety back north menu offerings.
We were also able to capitalize on a favorable marketing environment with higher levels of promotions that accrete marketing activity.
We will continue to monitor demand versus capacity closely and plan to manage these operational leverage as needed going forward.
As we discussed on our first quarter call, the safety and well being of our team member, it's particularly inside our fulfillment centers remains our top priority.
During this time, we've enhanced our existing comprehensive personal hygiene employee safety sanitation standard and have instituted other measures to help prevent a spread of cobot 19th.
As an FDA regulated operation our personnel have always been required to where appropriate protective equipment at all times in the production, Florida, leading nitriles loves Bach hair and beer net taking classes.
We also hope and additional safety certification can say quality food Institute, which is widely considered to be one of the most rigorous a comprehensive food safety standards in the world.
With regard to our supply chain availability and safety to date, we have not yet experienced any significant disruption, but our supply chain.
And then as our supply chain very closely and we work with supplier to hold and value. The same high safety is better patient standard you do.
Because we operate on a just in time sourcing model and had a strong network of supplier, we're able to make adjustments in real time based on our needs and those about the fire.
Our deep library of recipes and strong commentary.
German team allow us to also adapt correct me if as needed based on availability at signing up for high quality fresh ingredients.
We believe our strong second quarter results were largely driven by the increase desire for consumers have great tasting Cook at home meal options delivered directly to their homes during the pent up.
Therefore, our focus is on continuing to build products to meet the ongoing medium term demand.
Alright, this thing and new customers.
At the same time, we're taking steps to sustain this demand with high level of service menu variety quality in order to drive conversion of medium term interest into longer term consistency.
As such we remain focused on our previously announced growth strategy.
I want to be clear the heightened demand that work that we've experienced since late March is separate from our long term strategy, which I highlighted earlier in my call. It even before the beginning of the pandemic. The birth played with taking hold and had become to drive improved performance across the business.
With the results achieved thus far we continue to believe our growth strategy remains the right course of action for Blue apron.
As always we appreciate our longstanding customers as both those who recently turned to blue apron aren't huge doctor.
We take our commitment to provide every customer that invites us into their homes with a quality Neal experience and world class service very seriously and every day and seek to improve but that we can retain our customers and attract new ones.
Okay leaves a heartfelt thank you and the deep appreciation for our dedicated employees.
During this protracted challenging time has stepped up to help get more food more people.
I'll now turn it over to 10 to talk through our friend financials in more detail.
Thank you and good morning, everyone.
When you went to I would also like to take our entire team.
Over the last four plus month worked safely with tremendous focus and dedication and what have been truly unique conditions are responding to begin back to the pandemic, enabling us to deliver as many go away from your customers as we possibly can.
Turning now to Blue apron second quarter performance.
As you saw this mornings release, we delivered strong second quarter results.
For the second successive quarter, we grew our customer base sequentially quarter over quarter with all other key customer metrics, improving the highest level that we have achieved since prior to 2015.
These improvements demonstrate the progress we've made over the last three plus quarters on our long term growth initiative as well as the benefit we have seen from increased demand, resulting from endemic related changes in consumer behavior.
Net revenue in the second quarter of 2020 rose, 10% year over year to $131 billion compared to $119.2 million in the prior year and by 29% compared to the $101.9 billion in the first quarter of 2020.
Our first quarter conference call. We noted that we had lean back into our marketing efforts with a plan to help with attractive engage customers efficiently.
At the same time wants to make sure or marketing efforts love was the continued improvements we are making your product experience and our customer service.
Given the initial spike in demand in late March the continued throughout the second quarter, we pulled back on our marketing and promotion efforts as did our peers in the industry for most of the second quarter, while focusing on customer engagement and retention strategies.
These strategies together with the increased the man helped drive the year over year end quarter over quarter revenue growth as well as ongoing growth in our key customer metrics.
Maintaining or discipline customer acquisition market continues to be a priority as we continued to be successful with these efforts.
While marketing spend in the second quarter 2020 was down in both absolute dollars as a percentage of net revenue on a quarter over quarter basis, both metric did increase on a year over year basis to $11.6 billion or 8.8% of net revenue respectively.
Our marketing efforts contributed to our ability to increase our customer count by approximately 20000 customers quarter over quarter to 396000.
As I just mentioned, we also saw improvement in key customer metrics the points to a continued strengthening of our customer base.
Orders per customer increased to 5.4, the highest level prior to 2015.
70% increase year over year, and a 50% increase on a quarterly sequential basis.
Average order value in nearly $1, an approximate 6% increase on a quarterly sequential basis and 5% year over year.
As a result average revenue per customer was more than $300 for the first one ever rising nearly 25% year over year and more than 22% on a quarterly sequential basis to $331.
On the cost side car, excluding depreciation and amortization, that's a percentage of net revenue improved to 59.4% 10 basis points improvement quarter over quarter, and the 60 basis point improvement year over year.
The improvement in call I'm, largely reflects our continued focus on cost efficiency, which more than offset foreign language and attendance bonus investments made an office building centers during the pandemic.
Product technology in a RPT DNA cost declined 7.5% year over year to $32.5 million and 470 basis point, the 24.8% as a percent of net revenue, reflecting our ongoing commitment to cost discipline as well with the benefit in the latter.
Part of the quarter, the closing of the Arlington, Texas facility in May.
Teaching they cost declined 5% quarter over quarter, and 880 basis points sequential improvement as a percent that net revenue.
On the bottom line reported net income of $1.1 billion compared to a net loss in the first quarter of 2020 $20.1 billion at a net loss of $7.7 million second quarter of 2019.
Adjusted EBITDA for the second quarter was $11.1 billion, representing nearly 17 million dollar improvement quarter over quarter, driven primarily by higher net revenue efficiency. We are keeping up with Goldman Center network and our continued focus on cost optimization.
Finally, we generated operating cash flow in the quarter, a $15.7 million and free cash flow of $14.4 million, which drove a significant improvement in our quarter end liquidity as we exited the quarter with $45.4 million of cash cash equivalents.
Now turning to our financial outlook, let me preface for Q3 guidance by sharing some assumptions given our efforts on customer retention. We continue to believe that a portion of the demand increase we have experienced over the last few months driven by the consumer response, the Copenhagen can be sustained both through the end of this quarter into the fourth call.
Sure and potentially beyond.
Having said that you want to remind you the normal seasonality mirror business without the impact the pandemic whereby the man in the third quarter. The year. It's historically been below levels in the first half of the are and we also typically have some higher costs associated with shipping boxes in the summer months due to warmer temperatures.
In addition, as Linda mentioned, we recently began reintroducing some marketing and promotional programs and our business as we strategically focused on further customer attraction and retention at a time when we believe that interesting cooking at home continues to be on the upswing.
Our guidance also assumes both the consistent benefit to our business from an execution of our strategic gross growth initiatives as well as continued higher levels of demand to some extent from Cowen 19 related changes in consumer behavior.
Further our guidance assumes that we will not experience any significant disruptions in our fulfillment center operations or supply chain as a result.
Reflecting these factors and assumptions, we are expecting net revenue in Q3 to be approximately $112 million or approximately 13% greater as compared to Q3 20 Nike.
We expect to incur a net loss of no more than $80 million the third quarter, an adjusted EBITDA loss of no more than $8 billion.
As we announced in February the company's board of directors continues to evaluate a broad range of strategic alternatives to maximize shareholder value, including to support the execution of the company's growth strategy.
Well you referenced a reconciliation table from our net loss. We adjusted EBITDA is included in our earnings release, which has been posted on <unk>.
<unk> relations website.
And then I will now take your questions.
Hi, Jamie.
Sorry, everyone just.
Give us a minute, while we get our operator for questions.
And ladies and gentlemen. This is the conference operator are you able to hear me now.
Yes, we are yes.
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Our first question today comes from Maria reps from Canaccord. Please go ahead with your question.
Hi, good morning, and congrats on a strong set of numbers.
Uh huh.
Okay.
It is there anyway to break out how much of this strength in the quarter was due to called <unk>, which is your product to marketing efforts and I know it may be difficult question to answer but is there any anything in the marketing funnel that sort of gives you any clues and can also comment on whether reduce John had a significant impact on customer growth or was it mostly.
<unk> gross adds.
[noise] can do you want to start that I can.
Oh.
Yeah absolutely.
I mean, there's no doubt that a decent portion of the net revenue both in the quarter was driven by the consumer behavior as resulting from a pandemic, but we also pretty pretty confident but I'm a good part of it was due to work with plan and for a couple of examples in Q1, we're already seeing really good improvement in our customer metrics and salt.
That sequential quarter over quarter revenue, both to were already kind of headed into the direction. Obviously that got accelerated them. We got back you over your vote sooner than expected in Q2.
With some help from the I'm changing consumer behavior, but we're also still fairly confident that some portion of that was driven or good portion of that was driven by by our by our.
Growth initiative, you know a good example is under one of the things that Linda I'm talking about was we've had you know a very successful piece of innovation in the first quarter called premium on where we offer this unprompted has and enhance it kind of experience at a higher price point and that alone continue to.
<unk>.
Tribute it over a third of the 5% year over year increase in average order value. So we know that things like remember actually helping to drive the metrics that are driving the overall revenue I mean beyond that try to sort of parse out exactly how much of it was driven by some changes in consumer behavior from the pandemic you know versus the other thing that we're doing it's hard to say.
But probably the other part and this is also something that wind and I both talked about is.
Even as we see changes to consumer behavior that we assume our partly being driven by the the covert endemic and we also see indications that some of those consumer behaviors are gonna be sticky and though as we move forward you know, we're pretty confident that the.
Yes growth initiatives in the strategy that window laid out in that we've been executing it wasn't like Q4 of last year, there will be what we need to basically support the consumer demand and and drive growth going forward.
Yeah, just a follow on without we don't specifically talk about or our churn number publicly but what we can say is that a lot of what we've seen from the traction is both reengagement of existing customers as well as a new customer coming into the pipeline and a big part of what we're looking at when we think about the combination of the strategy along.
The.
Along with increased demand are things like Lv in some of our orders per customer numbers, which which were extremely strong during the quarter and that really as an indication of how people are engaging with these new products and in particular again premium that.
Tim mentioned before and that's that stayed fairly steady along with them at the other engagement programs that were doing to retain customers in the long term as things continue to ebb and flow externally.
Great. Thank you and maybe one more question if I could Ah. So you guided for year over year revenue growth in Q3, which is greed any thoughts you can maybe provide on the building blocks for the growth in the context of customer group a waters <unk> and he will be and do you think the profile looks similar to what sort of we still here in Q2.
Jim.
You know, we're not guiding on the specific metrics and part of that is you know there's still a lot worse to learn about what the impact of and the combination just like that last question to answer the combination of changes in consumer behavior or interacting with our continued focus on our growth strategy.
But for it to continue to grow we're going to continue the need to see improvement in those consumer metrics. So hopefully the combination of those do thing you know continues to drive you know growth across those networks, but we're not really at this point could I get a guide specifically, but but yet we move forward and need to see improving those consumer metrics should drive.
Good.
I will just add onto that as well, noting that we had previously mentioned that we were looking to see year over year growth. This is last year. When we're talking about our strategy looking to see your over in Europe growth in the second quarter at as we noted in her comments.
Second half the year and as we noted in our comments, we did see that accelerated thought we were anticipating strength based on the strategic initiatives that we were putting into place in the business to see a year earlier growth in Q3.
Got it Ah well. Thank you very much I appreciate the color.
Well, Thanks Maria Thank you Maria.
Once again, if you would like to ask a question. Please press star and then one.
And our next question comes from area coal from Cole capital. Please go ahead with your question.
Good morning, everyone I'm glad to hear there from one as well and I'm thinking we're doing this call Oh first question Linda is.
Regarding customers, who you surveyed about interest in ordering a force meal per week on the two new plan can you give me a sense what percentage of customers are in actuality enrichment and then these surveys indicate an interest in ordering a fourth meal a week.
In signature to have it was offered.
Yeah, we're not actually talking about specific numbers on that but I can tell you that demand in interest with strong enough that we accelerated the the roll out to all Richmond customer as quickly as possible based on what we were seeing from the demand and we're working of course to get that nationally as quickly as possible.
It's important to note that we had been doing surveys on this for quite some time, even pre coated and this was something that was a requested by our customers. Even before cobot started so there was already a strong base an indication that long term I'm, having more meals on the box would be a an interesting and interest.
Staying option for people on that you plan.
Given the for Pete plan already has a that ability and so we've seen that come through in in the the poultry that we've we've seen on the Richmond program. So we can't reveal specific number but it has been a positive.
Got it and then a year ago at the Canaccord Conference you'd mentioned that you were going to.
<unk> more offerings and customization to customers.
Approximately by you know the summer of 2020, I'm kind of kind of give us an update on how those expected changes or you know the timeline for those being offered to customers.
So as we mentioned in some of the comments even last quarter. We are staying very focused on the strategic initiatives that we wanted to rollout as we think that they are asset in both a again non covalent times, but also as we want to engage and retain customers that come in during a door.
Think of it as well and so a lot of that work is still in progress. We did have to push some of it back slightly in order to accommodate the additional demand that was coming in over the early part of Q2 and of course into a little bit later Q2, as well, but not significantly. So we are continued continuing.
To work on it but not giving specific timeline and we are full steam ahead on our strategic.
Priorities when it comes to those three things that I mentioned earlier and things like choice and variety. We just wanted to make sure that we were doing everything we can to meet demand the and also keep Barclays safe I'm trying to sort of unusual time that came in in the middle but it has hasn't changed our trajectory when it comes to our strategic out Rollouts.
Okay and just the last question about partnerships I know you announced one a six month or so ago, but what's the situation when.
Trying to a range and mark and launching get traction on partnerships with.
Other entities, you kind of kind of drivers subscriber additions, which is really the people in threeq <unk> diabetes et cetera.
Sure. So we are still I'm very engaged with the American diabetes Association and also with R.W.W. partnerships. Those are still ongoing we have added some additional work with with places like HBO and also a AAA and we continue to build out that its partnership throughout.
The year as we move forward until I can't really comment on what's coming up but we do continue to look at partnerships as one of our strongest a strategic levers that we can pull when it comes to driving customer growth.
Okay Wilson best of luck and thank you.
Thanks, so much.
[noise].
It's checking in on the operator again, if you're able to.
You can't hear you currently.
And ladies and gentlemen at this time is showing no additional questions I'd like to turn the conference call over to missed as Laci for any closing remarks.
Thank you very much shany appreciate it and so thank you very much for everyone for joining the call on behalf of everyone really front, we want to wish you your families colleagues and friends well in these unsettling time.
So lets you know that our teams are working very diligently and secondly to bring a credible hung cooking into People's health and we look forward to providing an update when we report our third quarter results in the fall.
Ladies and gentlemen, we thank you for joining today's presentation. The call has now concluded you may now disconnect your lines.