Q3 2022 Boxed Inc Earnings Call
[music].
Thanks, Craig and it's great to be with everyone today.
For today's call I'll start by providing some business update then I'll turn it over to Mark to go over our Q3 financial results. After that we'll open up the line for questions.
I'm, hoping everyone listening to this call with sharing our sentiment that we had quite a third quarter. We've been hard at work executing on the margin driving focus areas that we discussed on our prior call.
As a reminder, we sharpened our strategy last quarter to focus on several high potential high margin segments of our business.
Bus market and spreads out.
I am happy to announce that by focusing on these areas and utilizing the breadth of our technology. The team quickly began to deliver the increased profitability that we committed to.
Third quarter retail gross profit was up 88, 8% year over year and retail gross margin expanded 503 basis points.
As a result of this increased profitability as well as proceeds from financing activities cash consumption for the quarter decreased by more than half from the prior quarter down to an average of $3 4 million per month.
Many of our team members are listening to this call today and I'm incredibly proud of them they've worked hard day in and day out to produce these results.
Now, let's go deeper into each one of these focus areas and the progress that we're making against them well first start with <unk>.
As we mentioned last quarter, we're dedicating additional resources to capture the positive momentum we're seeing in this channel as strong return to office catalysts continue or.
Our efforts are producing results as high customer engagement yielded all time high beta the average order value, which came in at $301 for the quarter.
Notably expansion of <unk> mix has also led to overall retail net revenue per active customer, reaching an all time high of $336. After growing 38, 4% in Q3.
Additionally, this mix shift pushed overall retail <unk> up 21, 9% to another all time high of $150.
Lastly, the BW segment as a whole continued on its growth path with <unk> up 37, 1% for the quarter.
<unk> growth throughout this entire year at 51, 3%.
As you could probably see these kpis are just some of the reasons why we're proud about the team Q3 execution.
There's a lot of hard work ahead of us, but we're excited for the future.
Now, let's turn to box market or dark store fresh food delivery business.
I am pleased to announce the recent launch of our new location in Westchester, New York and the imminent opening of our Brooklyn, Dark store box market has consistently demonstrated <unk> in $100 range with third quarter <unk> is hitting a $113.
Historically these high <unk> have supported strong margins in the business and we look forward to expanding this great product to new locations.
<unk>, our software and services platform also saw good development that Q3.
As a reminder, espresso is an advanced technology platform, consisting of a world class suite of E. Commerce services based upon advanced analytics and machine learning.
Customers have the ability to select a complete white label end to end offering or choose from a customized suite of individual module.
With this modular ization spreads look analysis the needs of a broader set of potential customers really furthering our mission to e-commerce enablement across the globe through our technology.
Recently, we announced the signing of a definitive contract for our end to end solution with E on Vietnam.
And I'm happy to report that we've already begun deploying this nine year eight bigger threat to a partnership there.
<unk> is an important growth market for young and we're pleased that this project follows our implementation with Malaysia, another important market.
Now actively discussing further opportunities with beyond one of Asia's largest retailers.
As we've discussed previously for special module, we're pursuing a marketplace driven distribution model and recently announced our exciting partnership to joined Snowflake partner Network program.
The partnership is expected to support ongoing lead generation and sales effort and is designed to streamline implementation of threats of SaaS capabilities, the snowflake customers buy.
By leveraging snowflake data cloud joint customers are now able to seamlessly share the data needed to drive results through special technology, enabling rapid use of its advanced analytics and machine learning offerings.
In short advanced software technology analytics and machine learning capabilities are critical in today's environment. We believe our <unk> solutions are able to deliver outsized value for our customers as they have for our box retail business.
Lastly, let me spend a minute on cost savings generally.
In addition to focusing our efforts and resources to enhance growth and the highest margin areas of our business. A key part of driving increased profitability is of course also taking a closer look at our cost structure.
Shipping cost improvement price optimization restructuring, our corporate staff and focused marketing investments towards <unk> and box market were all factors in our quarter over quarter, adjusted EBITDA improvement of $6 1 million.
We will continue to manage our costs going forward as our priority remains meaningfully improving profitability.
Just about 90 days ago now, we detailed a focused strategic roadmap for the company.
I Hope you agree that this team has already begun delivering against that vision.
We believe that we're on the right track to accelerate our overall path to adjusted EBITDA and cash flow profitability.
Now with that let me hand, it over to Mark.
Thank you check as Jay noted, we are pleased with our financial and operating results. This quarter and they are a testament to the enterprise wide buy in to our sharpened strategy and the incredible efforts displayed by our team members.
When reviewing results for the quarter. In addition to year over year I would also suggest folks review our quarter over quarter performance.
This third quarter in particular, many of the trends on a year over year basis were impacted by a lumpiness in our software <unk> services segment, which had an especially meaningful impact on the P&L during the comparable prior year period in 2021.
With that I'll jump into our financial results for the third quarter, and then turn to our 2022 outlook.
Beginning with the retail segment net revenue was $41 6 million, an increase of eight 9% or $3 4 million compared to the prior year.
Retail net revenue growth was supported by a 38, 4% year over year increase in retail net revenue per active customer, which hit an all time high of $336.
In addition to stronger retail <unk> the.
And spend per user with a direct result of strategic initiatives taken to drive enhanced growth of our stickiest and highest profit customers, which supported mix shift towards <unk> and box market.
Turning to the software and services segment, we generated <unk> 1 million in net revenue in the third quarter.
Last quarter, we did not recognize any implementation services or upfront license fee revenue during the third quarter, which impacted the year over year comparable results across our entire P&L.
As we recognize significant upfront high margin software license fees of approximately $10 million in the prior year period.
That said as we look ahead to Q4, we have begun development of our Vietnam contracts, which we expect to result in some uptick in software and services revenue going into year end.
Further while we continue to anticipate near to medium term revenue variability in this segment with expansion of espresso product portfolio. We do expect an increasing mix of recurring revenue over the longer term, which will help support greater revenue predictability in the future.
Finally, and importantly, compared to our P&L the cash flow generated from our enterprise software contracts historically, much more consistent from quarter to quarter, which enables us to manage the business effectively as we focus on our efforts on driving cash flow profitability.
Combined for the total enterprise net revenue was $41 7 million, a decrease of 15% or $7 4 million compared to the prior year.
The revenue growth within retail was offset by lower software and services revenue this quarter.
Turning to our profitability retail gross profit increased by $2 3 million or 88, 8% versus prior year with gross margin of 11, 9% have an increase by 530 basis points year over year.
Similarly, retail gross profit and gross margin were up meaningfully quarter over quarter up 52, 4% and 445 basis points respectively.
We are thrilled by the positive momentum in retail profitability, we are seeing especially in the backdrop of an inflationary and challenged macro environment.
Strong margin expansion was supported by an increasing share of VW customer demand customers, who as of Q3 had a meaningful margin advantage over our BDC customer.
Further we saw the benefits of transportation cost savings supported by our first full quarter of results. Following our expanded that extra alliance pack.
Packaging cost savings and machine learning based pricing optimization, which is made possible through our <unk> technology capabilities.
I am incredibly grateful for the flexibility of our <unk> technology platform and the support of our data science and analytics capabilities.
These capabilities have enabled real time management of retail margins. During this inflationary environment and this quarter's results. Our firsthand evidence of how impactful are special solutions have been for the box retail business and also why we are so confident in the value proposition of our technology offering for other retailers.
Total gross profit for the third quarter was $4 7 million a decrease of $7 9 million with total gross margin at 11, 3%.
The year over year total gross profit and margin trend was unfavorably impacted by decrease in software and services revenue, which I discussed earlier.
Total gross profit was up $1 $9 million quarter over quarter supporting significant reduction in run rate cash burn.
Looking at operating expenses during the third quarter, we spent $2 $4 million of advertising a meaningful reduction compared to $5 2 million in the prior year period.
As discussed previously as part of our strategic vision, we expect advertising investments will be increasingly focused across <unk> inbox market to help support enhance growth of our highest profit customer channels, which we also believe will produce the highest relative return on investment going forward.
We are expanding our efforts to test and iterate, our dedicated marketing against these customer channels.
For the rest of the year, we are targeting similar levels of investment and we will continually assess our budget based on the results. We are seeing while also being mindful of the overall macro environment.
Our third quarter net loss was $26 4 million of which $10 million related to noncash or other one time transaction related costs.
This compared to a loss of $5 9 million in the prior year.
Adjusted EBITDA loss for the quarter was $16 $4 million sequentially quarter over quarter. This was an improvement of $6 1 million, resulting from the gross profit improvements as well as operating cost reductions previously discussed.
Moving to Kpis, the third quarter saw strong momentum across our key metrics.
Gross merchandise value was $49 million, an increase of $3 8 million or eight 3% versus the prior year period.
The increase was largely attributable to strong <unk> customer demand with DMD up 37, 1% year over year combined with an increase in <unk> from the box market customer base.
In addition to the BW mix shifts. We also saw an improvement on both order frequency and average order values across both our BDC and <unk> customers, which are good indicators of customer engagement and order level profitability respectively.
<unk> total retail had another all time high of $150, which was up 21, 9% year over year.
This increase was primarily driven by <unk> mix shift price inflation and ongoing pricing optimization.
As expected the reduction in marketing investment also resulted in a decline in new customers acquired which led to the decline in active customers during the quarter.
As we continue down the path of our strategic prioritization. The dynamics, we would expect to see here are exactly that.
Active customer accounts in aggregate will not be a key driver of growth because of the shifts from BTC to be how's.
However, we do anticipate an increase in active customer accounts within the <unk> and on an aggregated basis. When you look at retail our active customers will on average be generating more orders higher <unk> higher profits and more revenue per user.
Turning to our balance sheet at the end of the third quarter, we had a combined total cash and marketable securities balance up.
<unk> $39 $4 million, which is inclusive of a $3 3 million.
<unk> cash.
In Q3, we earned $3 $4 million of cash per month, which reflects a $4 3 million monthly improvement in cash burn quarter over quarter.
In addition to our ongoing liquidity management initiatives, which yielded these improvements we continue to actively explore additional capital markets opportunities to help support our operating and growth initiatives go forward.
We believe we are making good progress against those initiatives and hope to further improve near term liquidity with an additional capital raise prior to year end.
Finally, the forward purchase transaction that we executed with <unk> back in November of 2021 has now been fully unwound under the terms of the agreement.
This unwinding resulted in $4 1 million of net proceeds to the company. During Q3 of 2022, and we expect another approximately 500000 of proceeds to be paid during Q4.
Finally, turning to 2022 outlook, we are reaffirming our guidance and continue to expect net revenue in the range of $165 million to $180 million with adjusted EBITDA loss in the range of $65 million to $80 million.
As we've continued to discuss for the software and services segment. The exact timing of revenue recognition remains difficult to predict.
We believe these are temporary forecasting dynamics that will abate, if we further diversified our customer base and add additional recurring revenue to the business.
Between commencing deployment of the yen, Vietnam or new Snowflake partnership ongoing traction within our customer pipeline and the progress we're seeing on the product side, we're really pleased with the momentum in this segment during Q3 and expect to carry that momentum into 2023.
To summarize we are pleased with the progress we are seeing with our third quarter results. The entire organization was able to rally behind our updated strategic direction.
Golfing in strong to date execution against our commitment to deliver an accelerated path to profitability.
In Q4, we are also focused on raising additional capital, which will help support continued execution against our strategic growth plan.
We believe these efforts are the right immediate steps to set the business up for long term success, and we see a huge opportunity in front of us to deliver value for our shareholders.
With that thank you all and let me turn the call back over to Jay for some final remarks.
Thanks, Mark to summing up I'm proud of the way our team is executing on our vision to meaningfully accelerate our path to profitability to yield substantial value for our shareholders. We are already seeing tremendous improvement with a retail gross profit and gross margin and we are working hard on continuing those trends. Thank you all with that we're now available to take your questions operator.
<unk>.
Absolutely we will now begin the Q&A session. If you would like to ask a question. Please press star followed by one or you touched on keypad.
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We will pause briefly to allow questions to generate in Q.
The first question is from the line of Thomas Forte with D. A Davidson. Please proceed.
Great.
Mark Congrats on the progress, we're making in three areas of focus.
One question one follow up so for the question on the B to B when you compare it with your pre COVID-19 levels all the way back halfway back.
How should we think about it versus where it was.
Pre pandemic.
Thanks, Tom and thank you for recognizing and kind of how hard we work and the progress we're making on and just basically 90 days since our last time.
Last time, we were on the boat together.
Specifically with regards to your <unk> question Im glad you asked because we're so excited both from a macro and an internal perspective. So let me parse that out so from a macro perspective, we still think there's room to run.
I think folks are going back to the office.
Recently, we see data that suggests 50% of key only 50% of folks in New York City based upon key card swipes are back in the office. So from a macro perspective, we feel like we're not all the way back.
In a post Covid world just yet.
Internally to answer your question very directly we're still not at that high watermark.
That we said in 2019, so again excitement because not only externally, but we think that there's macro tailwind, but also internally. We know it's doable just because we've previously done it in a normalized world. So it's the reason why we're so excited again about <unk>.
Great and then for my follow up question on <unk>.
Mark market Westchester.
Hopefully soon to be box market Fairfield County.
For personal reasons.
Alright.
So for box market Westchester, what learnings have you had so far for recognizing it's still early what do you hope to learn given thats your first expansion outside of Manhattan.
So let me first start with just some high level thoughts that also hand, it over to Mark for some follow up so.
As you suggested it's still very early right. So.
Brooklyn.
The opening there imminent.
West Chester, it's still very early we only have a few weeks of data at this point.
What we're finding is that operationally.
We can still tune it is a little bit different operating in a world of cars versus just by schools. Because you can imagine in Manhattan, we primarily used by its close to deliver whereas in Westchester County, you're using cars as well. So we're taking all of that data and now punching well operationally, how many folks do you need to be.
To be available to drive to the customer's home and then also internally for picking and packing operationally what is the right mix of folks there.
Lastly, another thing that we're gathering in terms of data is what is the actual.
Customer preference when it comes to items that we should be carrying so as much as we'd like to thank everyone is very similar across the entire country or at least even within the state of New York. The reality is somewhere in Westchester is buying slightly different items and someone living in downtown Manhattan. So all of those three things I think we've begun to gather knowledge on in terms of.
Financial performance in terms of all of those things I think we want to wait until we have statistically relevant data compared to kind of the massive amounts of data that we already have four box market in New York and box score.
So, it's probably a little bit too early to opine on just on that just yet.
Sure.
I'll hand, it over to you I know you have some follow ups as well.
Yeah, absolutely. So yes, I mean, what I would add so far is that the great thing is that the customer behavior itself seems to be very similar from a overall order profile and dynamics and what we're seeing in that and then of course that was always something that's been really important to us right because at the end of the day.
We look at that business model, one of the great things and one of the things that we loved about box market. When we acquired it back in December of 2021, if you recall with those high <unk>.
And so that seems to be translating very nicely and for Westchester, obviously as we launch roughly actually something we're very mindful of that as well and so those are some of the customer behavior things that I think we're excited about from the early onset seem to be trending in the right direction and being very comparable to what we're seeing.
Yeah.
Thank you Chad Thank you Mark.
Yeah.
Thank you.
The next question comes from the line of Robert Cooper with Wells Fargo. Please go ahead.
Great. Thanks, guys.
Anything maybe qualitatively you can share on an <unk> customer adds our momentum in the quarter.
Then a couple on liquidity just wondering if you could.
So the update there, but just wondering if you could give us maybe a sense of exit rate ex the forward purchase receivable adjustment or settlement.
And then on the contemplated financing anything you can tell us but.
How youre thinking about that.
The committed capital on demand facility versus other options that maybe available to you. Thanks a lot.
Yes, sure thing and fix them up to the question so with regards to that active customer accounts and customer add.
<unk>, so that's something that we specifically broken out up until this point and so.
What I would say is that as we move forward. Obviously one of the things that we're focused on are shifting that marketing investment shifting our resources toward acquiring more customers on the BD side, So I kind of mentioned earlier.
Overall active customers as we dig into that one layer deeper what we anticipate is that active customer base is going to continue to grow as we move forward and obviously, what's going to happen as part of that is.
Mix shift as well right. So that's why I mentioned in all of our Kpis, because VW has higher order frequency higher stickiness higher all of those things are going to.
Provide nice tailwind to the overall business Kpis as we move forward from the total retail perspective.
Now moving to the liquidity side and some of the questions around there. Obviously, we're excited about what we've been able to accomplish on Q3, we significantly reduced cash burn brought that down by more than half on a quarter over quarter basis, obviously, a lot of that being driven by the profitability improvements. We've made the cost savings measures that we took in.
And place in addition to that we are exploring as I mentioned earlier additional capital markets opportunities and I think those will comment in a few different dynamics, but the great thing that we're seeing is that I think there are some actionable opportunities out there you are in the near term and so as we move into the year end.
We're very hopeful that we'll be able to announce something about that.
Before we finish up the year.
Got it thank you very much.
Thank you.
The next question comes from the line of Marvin Fong with <unk>. Please.
Please proceed.
Good evening, Thanks for taking my questions and congratulations on all the progress.
I guess another question on <unk>, maybe just a bigger picture.
Obviously now the emphasis.
Have you given any thought to maybe.
In a more mature level, where you'd like to see in your mix would be to be I think.
Roughly a quarter.
Maybe just comment on where that could go and.
Is there are things you can do on the cost side since you've historically kind of been more oriented and positioned.
The consumer that you can do to kind of optimize.
Further optimize profitability there and then.
Second question, just maybe on espresso.
How is the pipeline shaping up there should we think about or be concerned about any.
Macro issues that might be causing that.
Sales cycle to extend.
Along those lines that would be great.
Thank you.
Awesome. Thanks, so much Marvin so I'll start with the <unk> question, and then I'll, probably kicking off to chase to add a little bit of color on both <unk> and <unk> as well.
So with regard to the mix certainly I think over the medium to longer term.
We do anticipate that the BW Matt.
Start to shift above where we were sort of pre pandemic. So as a reminder, going back to.
What we sort of put out investor presentation last year was that during 2019 about a quarter of the business.
Related to <unk> customer demand and so we do anticipate that as we move forward, we should surpass that nets as Jay mentioned earlier, we're not quite there yet.
Overall penetration, but we do anticipate that can occur and then we do anticipate extending well beyond that.
We move forward.
With regard to the profitability points you asked.
Many of the things that work from a BD PDP profitability standpoint, a lot of the same sort of dynamics that we see on the <unk> side as well right. How do we drive a higher average order value. So that we're better utilizing the space and the box how.
How do we better negotiate our shipping contracts and our packaging contracts in order to really drive up the unit economics of that event. The good thing is that as we sort of.
<unk>, specifically I think there are areas of opportunity there that we'll continue to iterate upon and improve upon but overall we've been doing this for nine years on the BDC side and many many of the learnings that we've seen there are very very transferable to <unk> customers as well.
Okay.
Marvin you got Chegg here, thanks, very much for joining the call and for the question and if I could just kind of expound a bit on what Mark said.
Absolutely true.
Sort of way the playbook of increasing profitability.
<unk> customers looks very similar to BDC, and let me explain that a little bit so.
I'm sure you've joined US for several calls now including kind of when we first met each other at our analyst day and probably since then you've heard a steady drumbeat of us constantly talking about those.
Those average order values are so important to us.
It's probably one of our most important kpis because it's also we found pretty pretty good has a pretty good correlation with overall profitability of that particular segment.
Business as well so the higher <unk>.
In General you can think we're making more money from that box.
When you think about us increasing <unk>.
What we can do it.
Change, how we sell to these folks and what we sell to these folks so if theres a customer that potentially is just self service.
We should be operating more categories, so that when they come into the service. They can buy more items and we could do so by increasing our first party SKU count or.
And or increasing our third party marketplace.
SKU count as well both of which we've done since we've gone public last year.
The way, we can kind of change how we engage these folks to increase <unk> for the bigger enterprise customers and the mid market customers, who actually do get a representative to call them. We can help us upsell them. So if they are just buying water then perhaps we can show them a compelling opportunity where if they are on the water with some of the other.
Higher margin items that we sell.
It's good for us because it <unk> go up and it's good for them, because perhaps there'll be tripping other free shipping threshold and also consolidated purchasing so they can save a little bit of time and some money as well. So playbook is very similar with slight modifications hopefully that helps.
Yes that helps a lot.
Russell.
Can you talk about pipeline and.
And.
Anything about the sales cycle that you might be changing in terms of trying to secure new customers.
Yes, so on spreads so vis vis enterprise I think that's where we had an end to end white label solution.
That's probably where we have the most data at the moment.
Those sales cycles have historically been more theyre really large contracts as we are.
I put in the at the recent earnings announcement.
Vietnam contract, we sign is a nine year eight figure contract it so.
Those type of.
Partnerships take time to develop into eventually sign so.
Nothing out of the ordinary to report there as of now in terms of significantly longer or shorter sales cycles.
But in general as.
As you can imagine those big contracts do generally take.
Longer time to sell.
What is also very important and what I'll also want to talk about with regards to the pipeline.
Is that we are actively discussing with beyond.
Multiple other projects as well so now they've entrusted us with Malaysia, one of their largest.
<unk> outside of Japan, Vietnam, a market that's very important for basically every multi national retailer that operates in agent region. Today. So interesting is with those two.
We've historically talked about southeast Asia and also we're discussing other projects with them as well at the moment so from.
From an end to end pipeline perspective.
We feel like we feel pretty good about the pipeline as of as of today.
Yes, thanks for all that color.
Really appreciate it.
Thanks.
Thank you.
The next question comes from the line of Ron Josey with Citi. Please proceed.
Great. Thanks for taking my question guys I appreciate it I wanted to follow up on to show you talked about on the call. Just priority here is improving profitability just talk to us about the timeline or the path to overall profitability going forward has there been a change in terms of in terms of timeline, maybe pull forward and then mark as we think about like customer count active customer count.
Understood the mix at the <unk> and sort of what that means to the overall business higher <unk> et cetera, but as we think about this mix shift talk to us about how we might see active customers sort of evolved here over the next several quarters and years. Thank you guys.
Hey, Ron you guys change your thanks very much for the question so.
Specify start off and then I'll hand, the mic over to Mark So.
In general I.
I think you probably noticed quite a big jump in gross profit and gross margin with regards to the retail business. So I want to stress that it took a lot of hard work to grow that that gross profit line by 88%.
Year over year and also the gross margin by over 500 basis points. So we continue on that path, whether it's additional optimizations with regards to shipping.
Packaging at discounts.
Using our own machine learning.
Models visa B espresso to further optimize price in <unk>.
Conversion rates, who is all things that we have done and we will continue to do so even with such a large jump like that I'm not sure. If we would feel comfortable about further bringing in profitability at the moment or announcing anything with regards to that if you can remember last call we already brought in projected profitability.
Potentially by quite a bit because of some of these changes when we want to highlight is that these changes are beginning to work and so growing.
As we did over the last quarter.
First step.
Along that path to profitability lots of hard work ahead of us, but I think we're off in the right direction.
For additional context, I'd really like to bring market into the conversation.
Thanks, Jay Yes, so I, probably would add to all of those points I think.
As of right now we are not communicating any change to our expectations around timeline for profitability. So as a reminder, we kind of said as we exit 2024, that's when we'd really want to be adjusted EBITDA profitable and so that is a huge acceleration from what we had.
Previously targeted both internally and while it will be at that sort of put out the street during our <unk> process now.
On the point about active customer accounts.
Ron we're not specifically guiding to how we should be thinking about that metric on a go forward basis, but what I would say is that when you look at the quarter in particular.
As we brought marketing spend down that also led to a decrease in the number of customers acquired especially on the BBC side now as we shift that marketing investment and deploy more into <unk>.
The actual active customers of <unk> of course, we anticipate we will continue to grow.
I could say is that for each <unk> customer that we do acquire the value of that customer is so much higher from an LTV perspective from a profitability perspective from a revenue perspective as well that.
Customers, we need to acquire to sort of achieve our targets on the BD side are much lower than what we would expect and need to acquire if we were focusing that same energy investing in <unk>, our BDC customer acquisition. So that's really the dynamics youre seeing unfold within the active customer count and Thats kind of the way I would think about things on a go forward.
Basis.
Thank you Sir and thank you Mark should be helpful.
Thank you.
There are no additional questions at this time.
I will pass it back to Jay for closing remarks.
Thank you very much everyone for joining this important call. We think we've made a lot of great progress over the last quarter. We're looking forward to continuing those trends and to speaking with all of you over the next 90 days thanks, everyone.
That concludes today's conference call. Thank you you may now disconnect your line.