Q2 2022 Blue Apron Holdings Inc Earnings Call

Good morning and welcome to the Blue Apron Holdings 2nd quarter 2022 earnings conference call and webcast. At this time all participants are not listening only mode. As a reminder this call is being recorded today, Monday August 8, 2022 for replay purposes. Should you need assistance on this call, please signify conference specialists by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your telephone keypad. To withdraw your question, please press star than two. If you are at your computer, please use the Submit a question box in your webcast viewer. Now, I would like to turn the call to Tip Flaming, Head of Investor Relations at Blueprint. Tip please proceed.

Thank you, operator, and thank you everyone for joining us today. With me on the call, or Linda Finley, president, and chief executive officer, and Randy Revin, chief financial officer. Chief financial officer. Chief financial officer. Chief financial officer.

Before I turn the call over to Linda, a few remarks.

A slide presentation that accompanies today's remarks can be accessed on our investor relations website. As the operator just mentioned, in addition to taking our normal questions over the phone, we will also be taking questions via the webcast. If you are at your computer, please use the submit a question box in your webcast viewer. I'll be moderating, so I'll try to collect all the questions and ask them to our management team as they come in.

Moving on to our safe harbor.

Various statements that we make during today's call about our future expectations, plans and prospects constitute forward-looking statements as defined in the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of risks and other factors including those described in the company's earnings release issue this morning and the company's SEC filings. In addition, any forward-looking statements represent the company's views only as of today.

directly comparable gap results.

With that, I'd like to turn the call over to our CEO , Linda Finlay. Linda?

Thank you, tips, and good morning, everyone. We're pleased to have you here today for an update on our second quarter performance and the strategic priorities we laid out during our investor day in May. To start, I will broadly address our Q2 results as strategic execution. Randy will then provide a deeper dive into our financials and report on several recent developments.

During the second quarter, we continue to execute our next course strategy.

As outlined in our May and best of day, our focus over the next three years is on driving long-term sustainable growth, achieving a justity but not profitability in 2023, and positive operating cash flow in 2024.

Although we're only in the early stages, our hard work helped drive a slight increase in revenue versus the prior year in a seasonally slower second quarter and a 6% jump sequentially to $124 million, including a $10 million bulk enterprise sale.

Throughout the quarter, our customer engagement metrics continue to perform well. We achieved more than $67 an average order value, which is the highest level in the company's history, an average revenue per customer improved from last quarter to $328.

While recent price increases contributed to some of the improvement, our ongoing commitment to introducing new menu options, along with additional variety and customization, continues to be a key driver of these metrics.

For those of you who are listening in our customers, you may have noticed that we recently increased our menu to 62 options.

This is more than three times the number of options we had in 2019.

Finally, orders per customer were roughly in line with last quarter, illustrating the strong engagement of our customer base with our product offerings.

This quarter, our total customers were 349,000, a slight decline from the first quarter of 2022.

Similar to many other companies, we saw seasonal and macroeconomic pressures on purchasing patterns due to concerns over the inflationary environment.

I would note that we have some subscribers who chose not to order during the quarter for vegetarian travel reasons and therefore are not included in our customer account for the second quarter.

The customer number also does not include enterprise or bulk sale customers, which is an exciting new part of our business.

When we look at overall yearly trends, we get a more comprehensive sense at the scale of our business. For example, the total number of active customers over the 12 months ending June 30th, 2022, was approximately 682,000.

This was down slightly from the equivalent peak pandemic period a year ago, though it represents a more complete view of the active customers in our business as it smooths out seasonality.

We plan to continue reporting this rolling 12 month customer account in order to be more consistent with other e-commerce companies.

In addition, we saw some encouraging traction from the new brand campaign launched at the beginning of the second quarter. In particular, the heightened awareness drove a tangible increase in traffic to our site, with total weekly unique site visits in the second quarter increasing 14% from the first quarter and over 33% from the same quarter a year ago.

We're encouraged by the results of the more holistic approach to customer acquisition that we're taking, and we're now shifting our focus to improve conversion once consumers arrive at our site.

I'll talk more about our various marketing initiatives in a few minutes.

More broadly, our team remains disciplined in managing the business as we navigate current market dynamics. More broadly, our team remains disciplined in managing the business as we navigate current market dynamics.

In the month of June alone, the consumer price index rose 9.1% year over year, while prices for groceries and food away from home jumped 12.2% and 7.7% respectively.

During the second quarter, we introduced a small increase in our per serving pricing, bringing us in line with what our competitors charge that still less than the increases generally seen in the market.

For a most popular configuration, two servings, three times per week, we charge 999 per serving.

This drops down to 7.99 for four servings, four times per week.

We selected a salmon dish from our menu and compared the price of $9.99 for serving to let the ingredients of the grocery store in two key markets. We also chose a grocery store in two key markets.

Our pricing continues to represent a better value.

In this inflationary environment, based on an internal study, we continue to believe that our pricing compares favorably.

And with Blue Apron, you minimize spoilage and definitely end up with extra ingredients. And definitely end up with extra ingredients.

Our meal kits can also be more cost effective than a similar meal at a restaurant.

I should add that the price of a meal at a restaurant you see here does not include taxes, tips or delivery fees.

We are able to drive value for a number of reasons.

First, we have insight into demand because of our direct-to-consumer platform. Combined with our machine learning algorithms that help us forecast ingredient needs, this allows us to minimize food waste that is inherent in the broader food system.

Second, because we source approximately 80% of our raw materials directly from the producer, we can keep our quality standards high while mitigating some pricing pressure.

We also see a real additional value when you factor in the overall experience. We help customers ease the stresses and decision anxiety around grocery shopping and venue planning. And we give them an amazing cook at home experience for the broad variety of chef design recipes.

We continue to focus on translating our purchasing power into creating value and a joyful experience of home for our customers as they navigate a very challenging economy. default 5bsp and 10 4 Duke'd

As referenced earlier this morning, we unveiled the next phase of our turnaround strategy, appropriately called the next course at our May investor day.

Our goal for Blue Apron is to be the first choice for consumers who seek curated food experiences that meet the needs of their households and enhance their lives.

As a business, we plan to expand beyond traditional meal kits and subscriptions, including building an ecosystem of partners that creates better living through better food.

The next course strategy is focused on achieving long-term sustainable growth and reaching profitability and the adjusted either dial level in 2023.

Given the current economic environment, we believe our focus on reaching profitability is even more important.

The strategy is centered around three key objectives. One, building curated customer experiences to support growth and expand market share and target segments. At the target area, the device broadcasts the Afro data from the store to the!]

2. Creating a scalable platform by optimizing our technology and operational infrastructure to deliver a seamless and scalable e-commerce experience. And 3. Driving sustainable profit by executing against our ESG initiatives.

We believe that these three points aren't mutually exclusive, and we are working on each one at the same time over the next three years. In fact, we've already started implementing these initiatives across the organization.

Let me start with building curated customer experiences.

As a business, we are committed to driving market share growth and growth within our key four customer segments through targeted marketing, new partnerships, and product launches.

In the current economic environment, consumers are becoming more cost-conscious.

As I mentioned earlier, we are pleased to see their new brand campaign was successful in driving followed traffic to a fight and app.

The initial program ran for the first six weeks of the quarter, and we plan to launch the second Tron to the campaign in September for the back to school season.

While we are driving new traffic to the site, we are also working to improve conversion rates by testing, learning, and iterating on the customer journey.

For example, over the last few weeks, we launched a newly configured Blue Apron.com homepage and also updated and streamlined our pricing and plans page.

These changes are designed not only to make it easier for customers to navigate through the site, but also to provide the opportunity to share their preferences, which allows us to personalize their experience even further.

This is all part of our strategy to invest in our technology and organization to provide a seamless customer experience.

As we continue to roll out our brand campaign and improve our final experience, we believe that we should be able to drive elevated awareness and conversion moving forth.

Another key focus area is partnerships.

On the Distribution Partnerships side, in June , we launched a non-subscription offering on walmart.com. We continue to ramp up as we're still in the process of establishing consistent skews, ratings, and reviews.

We are excited to this partnership as allowed us to extend our e-commerce presence to a wider pool of potential customers outside of the Blue Aperinaco system.

In addition, we've been able to transform our fulfillment capabilities so that we can pack and ship a box for our channel partners within one business day. These are capabilities that we're extending to other potential partners. Thank you. Thank you.

As we shared in May, we are focused on securing more enterprise sales, which for us refers to corporate cordles, bulk gift card sales, sweepstakes programs, and the curation of custom boxes and experiences.

We believe these efforts helped expand brand awareness and drive revenue and customer growth. This quarter, we worked with feeding America, snappy, and Blue Cross Blue Shield companies participating in the Blue 365 program among others. The Blue 365 program among others.

Brand and media integration partnerships with another important area that we have been focusing on.

This past quarter we extended our Wellness 360 program to include the planet fitness. We also renewed our collaboration with Colm, a leading app for sleep, meditation and relaxation. material Renegate

These collaborations help make our media dollars work harder for us with larger reach, custom integrations, and retargeting tools that amplify priority messaging for both companies.

We are continuing to push forward with this work since these partnerships have helped us attract new customers often with lower customer acquisition costs.

We also continue to expand our gift card program to help attract new customers to our products. We are excited to share that we are now the first and only meal kit company to date that is part of the Knott Registry Store.

This collaboration comes in time for what is expected to be the biggest wedding season in recent history, and as couples look to include more personalized gift experiences as part of their wedding registry.

We launched a number of exciting new products over the last several months.

especially offering designs for families. A category we see is the biggest opportunity for us. A category we see is the biggest opportunity for us.

We recently expanded our weekly four serving menu to 12 recipes which includes a variety of vegetarian, wellness, craft, and premium options.

In our testing on this product expansion during the quarter, we saw increases in net revenue per customer, order rate and average order value for existing subscribers and reduced term.

We also saw a solid improvement in subscriber conversion.

We also recently introduced Ready to Cook, the newest addition to our lineup of quick-prep meal offerings.

These can help our customers create delicious meals in less time, without compromising on ingredient quality and flavor.

Each rest of you comes with pre-portioned, pre-chopped ingredients and recyclable aluminum tray, allowing people to simply combine, bake, and serve.

Our other quick meal options include our microwavable heat and eat meals and fast and easy, a series of recipes that are designed to be ready in under 30 minutes.

Lastly, we expanded our add-on options from 6 to 9. The options now include a weekly breakfast, a variety of salads, appetizers and desserts, as well as a selection of a la carte proteins.

This past quarter, we also introduced a new limited time seasonal meal kit created in response to customer demand for offerings that can help celebrate special moments.

These meal kits provide our customers with everything they need to make entertaining and easier with minimal effort.

We kicked off the new category with our first ever summer lobster box, which has been a hit with customers.

The next iteration of the offering will be a tailgating box that includes simple and elevated versions of Game Day classics.

Turning to the second objective of our strategy, we are focused on optimizing our technology and operational infrastructure deliver an agile, scalable and seamless e-commerce experience to subscribe to NetEats Core. Thanks for watching.

This work is expected to allow us to cross-sell our own products more effectively and to more easily integrate third-party products and partners into our broader ecosystem.

In addition, we plan to enhance our speed to market, drive stronger customer engagement, and unlock revenue enhancing opportunities.

As an example, we recently moved to a more customer-friendly structure removing limitations so they can order as many recipes or add-ons as they want.

A key part of our platform advantage is how we plan to scale our operations with minimal capital investment underpinned by our physical asset base.

We are making almost every aspect of our operations more flexible from receiving to kidding to our customer facing logistics. We are making almost every aspect of our operations more flexible from receiving to our customer facing logistics. We are making almost every aspect of our operations more flexible from receiving to our customer facing logistics.

As we continue to expand our product set, our key priorities are to maintain productivity and drive long-term margin improvements.

The third and final objective of the next course strategy is centered around driving sustainable profit by executing on our ESG initiatives. The third and final objective of the next course strategy is centered around driving sustainable profit by executing on our ESG initiatives. The third and final objective of the next course strategy is centered around driving sustainable profit

First, we purchased 248,000 metric tons of carbon offsets from a related party vendor to meet our 2023 and 2024 carbon neutral goals based on our 2021 estimated carbon footprint. Narrmore engine engines run snow on the intersection of the rapid restraint of models across the state by much as chance is an active large yell in Snake Creek where the COVID-19 crave for carbon neutral goals based on our carbon footprint.

We are paying for these carbon offsets over the next 24 months. We're happy to report that we were able to lock in the rate we paid for our 2022 offsets and what has become an inflationary environment for carbon offsets.

We view these offsets as an important interim tool as we continue to implement more practices on our path to net zero.

Second, we continue to work on including ingredients in our pantry that meet our strict quality standards and animal welfare guidelines.

In recognition of this work, we are pleased to be named a progress leader in Mercy for Animals 2022, Count Your Chickens report, which looks at improving broiler welfare in corporate supply chains.

We were included in a group of companies that are, quote, leading the industry in recording measurable progress towards broiler welfare goals. We were included in a group of companies that are, quote, leading the industry in recording measurable progress.

It's a further example of the importance we place on responsible sourcing and we think that our customers look to us and value us for it.

It's been a busy few weeks and months for the business, and we remain energized and excited about our path forward.

The next core strategy is setting us up for long-term growth and success, even with a challenging macroeconomic environment.

We look forward to providing updates on our progress in the coming quarters.

With that, I will turn things over to Randy for a review of the numbers.

Thank you, Linda, and good morning, everyone. It's great to be speaking with you, direct.

I'll begin with some highlights for the quarter and then provide detailed and context around how our results fit into our broader strategy.

We are seeing strong evidence that our data-driven approach to prioritizing marketing expenditures is paying off.

Second quarter net revenue was $124.2 million, up about 6% sequentially and up slightly year over year. The growth was supported by a $10 million bulk enterprise sale.

Now, average order value hit an all-time high of $67.14, up 7.1% year-over-year and 6.6% sequentially.

This increase was primarily driven by the pricing increases that we introduced in the second quarter, as well as several new revenue initiatives that we launched in the second half of 2021, including new add-ons and other features that allow users to customize their recipes.

Average orders per customer was 4.9, roughly flat versus last quarter.

Within this, our orders per customer for our best customers, which we define as our highest paying customers over the past 13 weeks, was actually up quarter over quarter and year over year.

Average revenue for customer was $328 up 2% from last quarter and down slightly from the prior year as the increase in average order value was offset by a slight decrease in order frequency, which we largely attribute to the continued post pandemic acceleration of travel that we're seeing around the country.

Customer count declines sequentially, as Lyndon noted, the 349,000 due to a few contributing factors.

When we reported our first quarter results, we saw very early signs that we might buck the typical seasonal trends that we tend to see in the second quarter.

However, as the quarter moved along, it became clear that our customers started to increase their travel fairly substantially while they also coped with surging inflation.

We have continued the process of enhancing and strengthening our balance sheet.

During the quarter, we successfully refinanced $30 million in debt, extending our debt maturity five years to 2027.

Our new debt comes with a lower cost of capital as it's interest only for the first three years of the term with our coupon set at 8.89% which is 160 basis points lower than our previous loan facility.

Importantly, it also removes the warrant coverage that was present in our prior term loan.

In addition to the refinancing in April , we entered into an agreement with RJB Partners, a related party, which included an aggregate $40 million private placement at $12 per share, with $20 million completed upon signing, and the remaining $20 million expected to close on May 30 or such other dates as the parties agreed.

Following ongoing discussions over the last few months about various avenues to increase shareholder value, we are excited that we entered into an amendment to the April agreement with RJB Partners on August 7, 2022, pursuant to which RJB Partners agreed to upsize the private placement.

Under the terms of the larger investment, RGB partners will purchase from the company approximately 1.7 million shares of Class A common stock under the April purchase agreement at a price of $5 per share instead of $12 per share and an additional 8.3 million shares of Class A common stock at a price of $5 per share for an aggregate investment of $50 million for 10 million shares of Class A common stock at $5 per share. We anticipate the closing of this private placement to occur on or before August 30.

towards long-term, sustainable, and profitable growth.

Turn two expenses, variable margin improved to 34.7% up 220 basis points from 32.5% in Q1, but down from 37.4% in Q2 2021.

You'll note that last year's margin had a 100 basis point benefit due to the recovery of proceeds associated with an onion recall in Q3 of 2020.

Results this quarter reflect continued cost management improvements and pricing increases. Most notably, we reduced our reliance on higher cost and less efficient temporary labor, which was needed in Q1 due to the Omicron variant.

As we've discussed in the past, when we increased our starting hourly wages to $18 per hour, we viewed it not only as an investment in our ESG initiatives, but also as simply a wise business decision.

For example, although it's not visible in our external financials because it lies between the gross and net revenue lines, we were pleased to see that our customer credits and refunds have been steadily decreasing since the fourth quarter of last year.

We've been working very hard to roll out various packing, shipping, and what we call the Herpeth Quality Box Initiative's Adafo Thumbnail Centers.

We believe the improved performance is very much enabled by a more stable, longer tenured group of full-time associates at our fulfillment centers, which we think is partly a result of the higher wages we're paying.

Product, technology, general, and administrative costs were $38.5 million for the second quarter compared with $36.8 million in the same quarter last year.

Given the current macroeconomic environment, I'd like to take a moment to discuss how we position blue apron to control costs while we continue to offer great value to customers. While we continue to offer great value to customers.

As Linda said, we believe we are partially insulated from rising food costs due to the unique nature of our supply chain, with approximately 80% of our ingredients sourced directly from the producer.

To illustrate this, our total food cost per box increased about 6% year over year and rose just slightly from the first quarter of this year.

This is significantly better than the inflation that we are seeing in some of the broader producer price indices that roughly correspond to our ingredient categories.

In addition to our direct sourcing model, we are also proactively, we also proactively manage our menu around rising ingredient costs, all while continuing to provide our customers with great recipes that they expect.

That said, we are certainly not immune to inflationary pressures.

As a result, we implemented the modest curserving pricing increases on our meal kits in one product's back in May.

We were thoughtful about how we pass through these price increases in order to continue offering the best possible value to customers.

We have no immediate plans to implement additional price increases, but we continue to closely monitor the overall environment and customer sentiment. We have no immediate plans to implement additional price increases, and customer sentiment.

Turning next to marketing expenses, our Q2 marketing spend increased $5.5 million over last year, but decreased 22% sequentially to $21.8 million.

Linda and I have shared our company's discipline approach to marketing investment and corresponding paybacks.

In Q2, we continued to optimize our spend and strategically pursued opportunities to put our marketing dollars to work where they could be most effective.

Online media continues to represent the largest share of total marketing, though we significantly ramped up our offline spend as we saw promising results from direct mail and TV.

In particular, we started rolling out our new national brand campaign at the start of the quarter with a goal of improving our brand recognition and raising broader awareness of the meal kit category. As Linda mentioned earlier, we've seen encouraging early results.

Looking forward, we have the benefit of being able to adapt and scale up or down our marketing based on where we see the greatest efficiencies.

Broadly speaking, we continue to expect any marketing investments to be shaped like an inverse bell curve, with Q1 and Q4 representing higher quarterly spend than Q2 and Q3.

Other income on a net basis was $387,000 driven by a non-cash fair value adjustment on our prior warrant obligation, as well as again recognize upon fully repaying our previous term loan.

As a reminder, after completing our debt refinancing in May, we are no longer required to provide our lender with warrant coverage.

Turning to the bottom line, we reported a net loss of $23.1 million and adjusted EBITDA loss was $15.5 million.

Operating class cash flow was negative 18.3 million dollars compared with our prior expectation of positive operating cash flow this quarter. This was primarily impacted by the timing of a $20 million related party marketing receivable.

At the end of the second quarter, we had cash and cash equivalents of $54 million. This excludes the $50 million we expect to receive from RJB by August 31st, and a $20 million related party marketing receivable that we expect to receive concurrently with the closing of the $50 million private placement.

Subsequently to the quarter, we received $10 million in proceeds from the bulk enterprise sale Linda mentioned in her earlier remarks.

Before I turn things over for Q&A, let me touch briefly on our outlook.

Our guidance and targets reflect assumptions regarding our business.

These assumptions include the anticipated benefit to our business from the execution of our strategic growth initiatives, including the impact of the equity capital raises that we have announced.

Our guidance also includes the impact of the gift card transaction also discussed earlier. These transactions should allow us to increase investments in marketing and technology initiatives and infrastructure, as well as continued operational improvements.

The following guidance also assumes certain gift card redemption rates and the expansion of our enterprise sale and marketplace sale channels, including the anticipation of additional bulk sales from a plan directed donation to an enterprise customer from a company related to the party.

The following guidance also assumes that the company will not experience any unforeseen, significant disruptions in its fulfillment operations or supply chain.

or any increased impacts from macroeconomic trends such as inflation.

As we have said over the last three quarters, following the expected close of the private placement and receipt of the related party marketing receivables, we are pleased that our strength and balance sheet will give us the ability to continue investing in marketing, marketing technology, and other initiatives to drive growth.

However, in today's fluid and in many ways unprecedented macroeconomic environment, we believe it is prudent to adjust our revenue growth for this year and focus on driving to profitability. We now expect 2022 revenue growth of 7% to 13% over 2021.

Even with this change, we continue to believe we are on track to achieve our first full year of adjusted EBITDA profitability in Fiscal 2023 and positive operating cash flow in Fiscal 2024. We continue to expect to have materially lower cash utilization in the second half of 2022 versus what we have experienced here to date.

With that, we will now open up the call for Q&A. Operator.

We will now begin the question and answer session. To ask a question, you may press star than one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star than two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Maria Rips with Canaccord. Please go ahead.

Thanks so much and good morning everyone. So your revised revenue outlook still implies a pretty healthy acceleration in the second half. Can you maybe just talk about what's embedded in that outlook? Do you anticipate sort of customer base to return to growth? And what's embedded from additional enterprise sales in your full year guidance?

Thank you so much for the question, Maria. So a couple of things are included in that. So yes, we are starting to see very good success with some of the consumer campaigns that we're doing is that we get back into our back to school season and some of the big priorities that we have for the rest of the year. So that's a big part of what you're seeing there. We are also seeing significant traction not only with enterprise sales, but also those both gift card sales and we'll have more to report soon on that.

In addition to that, we are continuing to leverage what we've learned around the other sort of Walmart sales channel as far as new distribution opportunities for new potential partners going forward. So probably what you're going to see is you're going to see a bit more leaning towards the revenue side than necessarily the customer number side as we start to introduce more and more of those bulk card sales and other sort of enterprise sales opportunities into the rest of the year.

that continue to be really effective for us. The only thing that I'd add is that Maria, you're absolutely right. We are expecting acceleration in the second half of the year. A big function of that, of course, is the lap. The comps from prior year are softer than the business has been trending, so we do see a good route to accelerated growth in the second half.

Got it, that's very helpful. And then, so you talked, you said you were seeing pretty good traction with brand marketing spend here. How is the softening sort of consumer environment impacting your approach to marketing spend? Are you still committed to doubling your market and spend versus 2019? I believe you said.

If the consumer spending gets so far here in the near-dream, how could we click on you pull back on marketing spend if needed?

It's a great question, Maria. And actually, we are making strong adjustments in our marketing spend as we look towards what's happening with consumer behavior. For us, it's thinking about how do we focus both on consumer acquisition and the conversion piece that I talked about in the script, but also thinking about retention and engagement activities as people, become challenged with budgetary constraints. And so a big part of what we're doing is making sure that we're demonstrating the value of the box and the fact that we are cheaper than the grocery store.

And we've actually metered out some of our brands spend the most effectively used throughout the year. So as we mentioned in the script, we had a big push at the beginning of Q2 that really did a lot for our traffic. And we're going to introduce a new brand marketing push later into the year. So what we've done is we've gotten a lot smarter about thinking about how we managed costs to stay efficient during this time and focus heavily on conversion and customer engagement as some of our strongest levers.

throughout that entire process. I'll let Randy talk a little bit more about the spend itself. Yeah Maria, you asked about the previous communication with the company that indicated a directional doubling of marketing spend over a couple of years ago. Our marketing spend of course will be significantly higher than it was in 2021 or in 2020, but we will monitor the situation as it's fluid and we're governing our spend by paybacks. To the extent that paybacks

look like they are accelerating, we would increase our marketing spend. If paybacks stay around where we've been seeing them, I think you can expect a slight pullback in marketing from where we previously suggested we'd be. But again, the increase in spend on a year-over-year basis will be material. And the only other thing I'll just add, not to pile on a third answer to the same question, but the only other thing I'll add is, of course, as we look at some of these enterprise and bulk sales, that adds a new marketing dynamic that's very efficient for us as we continue to think about marketing spend opportunities.

Got it. Thank you so much for the call. I'll get back in the queue.

The next question comes from Dan Kurnos with Benchmark. Please go ahead.

Great, thanks. Good morning. First of all, I appreciate the incremental color on the trailing 12 customer count. I think that's a much better view of what's going on. Can we just start there a little bit though now that you guys have had a little bit more time to digest the reaction to the price length? Can you just maybe talk about either feedback or impact on churn since that time and obviously senior competitors? Good morning.

Largely follows suit, so it's not unusual in the industry right now. The values obviously still there, but any initial learning is just from what you have at the Health Home. Thanks.

Yeah, absolutely Dan. We, like everything we do at Blue Apron, we deployed very much a test and learned philosophy. We were able to learn a lot from the pricing changes that we implemented about a year ago. So we had an anticipation of what customer behavior would look like. In summary, we saw almost no incremental turn or change to order frequency from pricing last year. Our expectation was that we'd see similar trends this year. And we're quite pleased to report that.

the incremental or small amounts of churn that we would have expected actually hasn't come through to fruition. What we can tell from our customer numbers is generally speaking, they are accepting of our price increases because they still recognize how much value we give them. And I will add one more point before I turn it back to Linda which is you mentioned competitors. We actually moved our pricing up to be in line with competitors. We were actually below them which we think is an opportunity for us given the quality of our product and the value that we give to our customers.

Linda, what would you add? Yeah, I think that really summarizes it quite well. We're very careful to test, but we're also very careful to speak to our customers on an ongoing basis through focus groups, through surveys and through really detailed data analysis when someone does choose not to order with us. And so we're very clear on the difference between the pricing change and macroeconomic factors, which helps us think about our communications and our marketing programs and our pricing.

really effectively. And we do know that a big part of what we're seeing is macroeconomic as opposed to being directly related to the pricing change based on those same tests that Randy was talking about.

Got it. That's super helpful. And then I want to dig a little bit more into kind of the e-comm shift, obviously with subscriptions at a core as you said. The Ready to Cook seems really interesting. I know you guys have always tried to solve for the problem at home, have a reason to order. Can you just talk – you also talked Linda in the prepared remarks. You reiterated just how much expansion you've seen in the product set. So maybe just how do we think about if we use Ready to Cook as the –

and some of these new product varieties that we have introduced is the AOV. So as you saw, we had record AOV this quarter and that's been a really strong signal for us that in addition to the fact that we continue to provide value in the box, we continue to provide additional products that allow people to meet the needs of their particular lifestyle or needs. And one of the things we also talked about in the prepared remarks was again, removing the one box limit so that people can actually order as many recipes as they want.

who are time stars, who are incredibly busy, and particularly the segment that we continue to lean into and see the biggest opportunity in, families who are really looking for help at home, but still want a high quality experience.

And so things like ready to cook really take all of our DNA on really fresh high quality ingredients and just make it a lot easier for families to come in. From a marketing perspective, we're actually taking multiple approaches.

So first of all, we're actually looking at how do we address multiple needs for households because what we've found is households who buy blue apron are actually looking for something of all of these different products sets. So they're looking for maybe a ready-to-cook as a complement to their regular meal kit. And then maybe some heat-need meals that they can actually have for lunch. And they said they want all these things together and so we continue to educate them. Not only is there coming in.

but also after they've come into the service, we do a lot of direct marketing to them to make sure they understand all the different choices they have with Blue Apron. Then we're also doing a lot more segmentation. So also in Q2, we started launching our first targeted campaigns at families, specifically addressing some of those needs that might be more specific to families who are looking for assistance. So the marketing spend is both going deeper and deeper into the customer relationship, but also we're starting to target.

the only thing that's growing this year. Maybe just a sense of, in the market, it's been very disrupted right now on understanding that performance channels are really messy and the row as maybe isn't as effective in some of the more traditional performance channels. We've seen kind of a bloodlighting in social. Is there any kind of other tactical digital spend that you guys are testing now?

I'm waiting for the big kick-top campaign, right? That might be out there beyond your traditional brand spend knowing that you guys still have a good push and a lot of traction and effective recognition growth from the marketing campaign that you're running.

You know, we have actually seen a lot of success with things like TikTok, and so we've already been leveraging that. I think what's actually become more and more interesting for us is the combination of things. So for example, TikTok and affiliate together is a pretty powerful channel for us as one example. So I think what you're seeing with performance and some of the other media opportunities that are out there is, it isn't just about one. There's a few magic moments that come together when you combine various things to social on its own.

correct is not necessarily one of the top places to go, but when you can combine social with affiliate, for example, or when you combine direct mail with couponing, those are some of the more interesting combinations we've seen. Let's more to come.

Got it. That's super helpful. Thanks very much and good start to the year with the messy environment out there.

Thank you.

The next question comes from Mietra Ramkapal with Siddhoti. Please go ahead.

Yes, hi, good morning. Thanks for taking the questions. First, just coming back to the revenue growth outlook for the remainder of the year, I was wondering if you expect any material contributions from the new menu options, whether it's seasonal breakfast and even the ready to cook or is it just a little too early there? And also potential additional partnerships like the one you announced with the knot, for example, if you have more in the pipeline that you're already expecting.

I'll take the first part, Miesra, and then I'll hand over to Linda around partnerships. With respect to revenue growth, it's going to be driven by basically three main buckets. First is going to be the continued annualization of the pricing increases that we've had. That did contribute some of our AOV growth in the second quarter, and we'll likely continue to drive both AOV and therefore total revenue in the second half of the year. Beyond that, we of course are excited about the newest part of our business, which are enterprise sales.

the enterprise sales piece will also play into our overall revenue growth. And then finally, it's the partnership piece which is the greatest – it's a perfect opportunity for me to turn it over to Linda to talk more about what we are seeing there. So it's nice for us because we see multiple paths to achieve revenue growth. We are of course, the subscription remains at our core, but we are quite excited about the expansion of the business, and the ability to tap new revenue channels making us far less dependent on any one set of –

situations to drive top-line growth? Yeah, and I can just take it from there. Thanks so much for the question, Mitra. Yes, we do actually anticipate a lot more partners, and we have several already in the pipeline that you'll hear about in the coming two months. And as part of that, keep in mind, we really think about these enterprise sales concepts as the inclusion in corporate portals, bulk gift card sales. We have suite stakes programs and the curation of custom boxes and experiences. So something that we found to be very successful is being able to sell gift cards, because that's something that customers are really...

engage with employees all over the country. Just for complete this, METRA, I wanted to come back to part of your question, which is with respect to the contribution of new products to our overall revenue growth. We continue to expect revenue growth through the expansion of add-ons. For some of our newest programs, like Ready The Cook, which is one that Linda mentioned in her prepared remarks, that one is just a bit too early for us to see exactly how it will move the needle. But there certainly is concentration in our forward-looking revenue number from the continued take-up from our customers.

more add-on options, other day parts like breakfast with you mentioned, so that certainly does factor into the increase in revenue as well.

Okay, that's great. Thanks.

Just switching a little in terms of this is obviously still a very tight labor environment and I know you incurred some additional costs relating to personal additions as you focus on building out the growth strategy. Just curious how aggressive you intend to be on that front given the labor conditions right now.

So labor obviously hits our P&L in two big places. First and foremost in the variable margin where our fulfillment center associates are expensed and then secondarily in product technology general and administrative, what looks like G&A in most companies. On the first piece, variable margin, we're really excited about what we've seen as we increased our starting hourly wage rate. We are...

Labor obviously hits our P&L in two big places. First and foremost, in the variable margin where our fulfillment center associates are expensed, and then secondarily in prior technology general administrative, what looks like G&A in most companies. On the first piece, variable margin, we're really excited about what we've seen as we increased our starting hourly wage rate. We are experiencing... We are experiencing...

Strong levels of associate engagement. We have the right complement at this point of full-time Blue Apron badge associates and temporary associates which we use to flex up or down as volume moves. What you should continue to expect is ongoing efficiencies from the investments that we've made in our variable labor force. With respect to G&A, I expect over time that number to actually come down. We shared externally when we began making a number of our capital raises and balance sheet moves.

late last summer that we were going to use those proceeds to invest in marketing, marketing technology, and infrastructure. Those last pieces are important because it does take both time and human capital to stand up a lot of the new marketing infrastructure and other types of customer facing services that we offer. But as those get built and begin to scale, we should be able to pull back because we built these to persist. They are programmatic. Linda, do you have anything to add?

No, I think that's really the most important piece. Again, I'll go back to the same thing we've said before. We feel that it's important to invest in our labor when it comes to compensation and really engaging the best quality labor. But what we have been able to do is leverage what we have in our facilities to continue to expand the complexity of our product while not adding significant burden from a labor perspective long term.

Okay, that's great. And then finally, as you look at the ability to leverage the model, as you continue to build out the infrastructure platform, could you remind us as we look at the District Court Distribution Centers, your available capacity or an ability to lever a new business? You're available capacity or an ability to lever a new business.

Yeah, so that's actually again one of our strong advantages. As we said multiple times, there was an overinvestment in capacity early in the company's life cycle. And while we've mitigated that pretty effectively across the network, we have two state-of-the-art facilities that actually have a decent amount of capacity where we could scale for say two to three years pretty effectively, including what we set forward as our long-term vision without much capital infrastructure investment.

So that continues to be an advantage for us where we can scale the business without having to deploy significant additional resources. And I would say again at least two to three years if not more.

Thanks again for taking a question.

The next question comes from Sebastian Petulia with Jefferies. Please go ahead.

Hello, thank you, Linda, and Rande for the presentation. As you pointed out, or doing from Bluaprin can be cheaper than recreating the same recipe at grocery stores. But I believe the customer perception is that Bluaprin or any other meal could accompany that aspect. There's actually more expensive than buying food from the grocery stores. And at the end of the day, it's the customer perception that matters. What are some of the things that you're doing to educate the customer that you're really cheaper than supermarkets, please? If you're doing.

and where we come out ahead on both of those when it comes to our ability to drive value. So a lot of our marketing campaigns are focusing on this now. You may also know that this is our 10th anniversary this month, and so our customer letter focuses on how we actually drive value in those comparisons, and we're continuing to tell the story through media and other channels as we discuss further. It's interesting as you think about the consumer buying behavior and how they perceive.

a price when things are consolidated into a single price versus broken out into separate pieces and parts. And so we're testing different messaging and understanding so that people can start to see the value that we actually provide. The best part of this though is when we do look at the consumer price index, we do know that we come in lower compared to what people are seeing in the stores for the same quality ingredients. And also when you look at the producer price index because of our delivery model.

we know that we're able to moderate our price increases compared to what people are seeing in the market. And again, we see this coming to fruition in as people are purchasing from Blue Apron, we continue to see this strong AOV that's not just driven by pricing, it's also driven by people adding additional products to their cart, which tells us that they are starting to see more and more of the value in and it's really now a big marketing push that we focus on at this stage.

Thank you very much. If I may follow up please.

That's the switching the subject a bit actually. That's the revenue from the enterprise customer come at a similar margin as the one for the rest of the group or is it higher as I'm assuming there might be less marketing investments needed.

They're all unique, Sebastian. It really will be agreement-by-re-agreement as it relates to these enterprise sales because these are larger in nature. They require a little bit more direct dialogue with each particular enterprise partner solving for their needs. What I can share with you is the enterprise sales that were in our Q2 results were slightly favorable to our core meal kit margin, although I would describe them as directionally similar. That being said, as we explore other enterprise sales, I would describe them as directionally similar. That being said, as we explore other enterprise sales, I would describe them as directionally similar.

there are likely to be occasions where the margin profile will be significantly stronger than our core business because, to your point, of the lower reliance on marketing expenditures and the ability to ship in bulk, we get benefits from an outbound freight perspective as we fill our trailers. So it will be dependent on the actual agreement.

That's all for me. Thank you very much.

Thank you, Sebastian. We are going to hop over to some questions coming in through the webcast. We're getting some great questions coming in there. Thank you very much to everyone for jumping in with these questions. We are excited to open up the questions to a broader audience than we've typically done in the past.

The first question, we actually just answered about the margin terms of enterprise sales. So we're going to skip the next question in the interest of time. Next question is, how are Walmart and other channel partners performing is a plan to break it out under revenues in the longer term?

Sure, I can start on that and then Randy can jump in on the rest of the questions. So we're still ramping up our Walmart partnership and as we mentioned in the prepared remarks, we're still building out new SKUs and the reviews process which takes time on a retail channel. But we're happy with both the infrastructure that's been built for the Walmart project that we can scale to other partners and we are happy with the traction that we're starting to see. So it will be a longer term partnership where we expect to see more results over time.

With respect to breaking out that component, we have no immediate plan to do so. To the extent that we find any new category, whether it's enterprise sales or some other form of partnerships, becomes an overly material portion of our net revenue, we'll certainly contemplate it. At this point, we can't commit to any plans to break those revenue numbers out.

All right, the next question. Are there further related party promotions or sales currently expected? What's currently expected?

So, actually, at this point, we're still pursuing different opportunities for the business. I'm not sure if, since the 30 million is actually the pipe coming in, I'm not sure if you're talking about promotions going out or pipes coming in, but we are looking at a variety of opportunities for the business, both on the enterprise sales standpoint and then also, again, continuing to build shareholder value. Thank you.

All right, we've had some questions come in that we've already been asked, so I'll skip those. We have a question from our good friend, Mickey. He would like to know if partnerships with Major League Baseball or the NFL or NHL for the use of on stadiums for brand name advertisement. He'd like to know if we've considered that and whether we could sell it.

and deeper product integrations when it comes to related items like big game days we're about to launch our tailgate box. And so I think the audience is certainly the right audience, but we're always going to make sure that we can get the return on investment with anything we put forward.

I'm glad you like our ready to eat meal offerings. We think they have lots of uses in a variety of different environments.

All right, in the interest of time, we're gonna have to close the call today. Thank you very much everyone for joining us today. If you have any additional questions, please don't hesitate to reach out to us directly.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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