Q3 2022 Blue Apron Holdings Inc Earnings Call
Good morning, and welcome to the Blue Apron Holdings third quarter 2022 earnings conference call and webcast.
At this time all participants are in a listen only mode.
As a reminder, this call is being recorded today Monday November seven 2022 for replay purposes.
A slide presentation has been created to accompany today's remarks and can be accessed on the blue apron Investor Relations website.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
On this morning's call, we have Linda Findley, President and Chief Executive Officer of Blue Apron, and Mitch Cohen Chief.
Chief Financial Officer.
Before handing the call over to the company, we will review the Safe Harbor statement.
Various statements that the company makes during todays call about future expectations plans and prospects.
Forward looking statements for the purpose of the Safe Harbor provisions under the private Securities Litigation Reform Act of 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 issued this morning, and the company's SEC 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 with generally accepted accounting principles.
You are encouraged to refer to the earnings release, and SEC filings, where it has defined these measures.
The reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.
With that I would now like to turn the call over to Linda Findley Blue apron CEO Linda.
Thank you and good morning, everyone. We're pleased to have you here today for an update on the business.
Joining me on the call as our interim CFO , Mitch Cohen joined US a few weeks ago.
We're thrilled to have Mitch on board as we continue our search for a permanent CFO .
Mitch comfortably comfortably with significant experience in consumer oriented company, including Red Dot and Sarah.
I would like to welcome mentioned appreciate is ongoing support.
Before I jump into the quarter I'd like to directly address our cash position.
As many of you know last month, we made the decision to tap the public markets to enhance short term liquidity and maintain compliance with our minimum liquidity covenant.
We completed an at the market offering in early October , resulting in approximately $14 $1 million after fees and commissions.
We did so in light of not repeating the private placement and other funding that was expected from affiliates administered sandberg, our largest shareholder by the end of September .
The proceeds of our ATM program enhanced our short term liquidity and allowed us to remain in compliance with our financial covenants.
We continue to remain in active discussions with Mister Sandburg, and we entered into a pledge agreement with one of its affiliates.
Under this agreement Labor and was granted a security interest in certain securities of private companies with a value estimated to be significantly in excess of the $56.5 million out Mitch will speak a bit more on that.
We are also taking actions to further stabilize our cash position. We are working closely with financial advisors to explore financing and other alternative avenues to manage our liquidity.
Over the summer, we began identifying and instituting several cost savings and margin initiatives, including beginning to find additional ways to manage our cost structure and improve margins in.
In the third quarter, our variable margin was 32.2% a reduction on both border, but quarter over quarter and year over year basis.
Decline was mostly attributable to higher cost across packaging and logistics, we plan to continue to identify other areas to further manage.
Fences moving forward.
Additionally, we announced today that Craig Haack yard has joined our team as chief supply chain officer disposition replaces the role of Chief operating officer and is accountable for all fulfillment center operations supply chain and logistics and procurement.
This comes to Blue apron with over 30 years of supply chain and operations experience specializing in fulfillment center operations management.
As background the centers on implementing processes to allow for more efficiency better decision, making and better cross functional ways of working.
We expect that this expertise will be invaluable to us as we focus our attention on improving our variable margin increasing productivity and enhancing quality.
While we plan to provide a more comprehensive update on all efforts on our fourth quarter and full year results conference call. Another area, where we took notable action this quarter is in marketing during.
During the third quarter, we reduced our spend by 21% as compared to Q2 2022, we saw cost of marketing rise beyond sustainable level, particularly in search marketing and therefore, we are adjusting spending tactics accordingly.
We're focused on optimizing our programs to return to pay back within one year.
Considering the importance of marketing on our business, we're constantly looking at ways to improve our strategy balancing where we are today and broader market conditions.
Over the past few weeks, we welcomed Amber mentioned as our new Chief marketing Officer Amber comes to us with over two decades of data and growth oriented marketing experience that we think will be invaluable to our business as we move forward.
Over the past two years, we built a solid marketing foundation, including significantly strengthening our brand equity.
In parallel we have also invested in key tech improvements. These efforts will allow us to shift our marketing strategy efficiently to be more data and performance right.
Looking ahead, we are taking measures to be disciplined in managing the business and cash we remain focused on our goal of long term profitable growth.
In Q3, we continued to deliver key consistent key customer metrics.
Average order value of $70.83 with a new company record as well as average revenue per customer or $340.
Order frequency held steady at 4.8 down modestly from Q2 and in line with seasonal quarterly trends.
Price increases implemented over the summer along with our ability to continuing to provide greater menu options and additional variety drove our success with these metrics.
Total active customers over the 12 months ending September 30th was approximately 679000. This was a decline of one 3% in the equivalent period a year ago.
As we mentioned last quarter, we believe our 12 month customer number represents a more complete view of the active customers in our business stays out seasonality.
For the quarter or two for the quarter total customers were 323000 down 7.5 sequentially and seven 9% year over year.
Similar to Q2 seasonal and macroeconomic pressures on purchasing due to the inflationary environment drove a portion of the decline.
We found that our marketing efforts in Q3 were less efficient than in prior quarters, which equally impacted our customer counts.
Our product pipeline also remains strong as we continue to innovate and provide our customers with new and unique ways to shop with us.
As our latest offering our new ready to Cook recipes are resonating well with customers. These meals help meet their growing need for quick convenient and delicious meal time options.
Our culinary team executed a well thought out testing plan, allowing us to launch this product without introducing new ingredients into our pantry.
So far these meals are performing well and continue to receive high praise from our customers.
In addition, we expanded the subscription experience to be more customer friendly now customers have the optionality to order as many recipes and add ons as they want port per week with no limitations.
Our seasonal occasion based boxes are also a big hit between now and the end of the year, we are helping our customers celebrate the holiday season.
We introduced our biggest Thanksgiving offerings to date, followed by our new holiday Rose Sparks to extend this evening.
These offerings are created to give customers the flexibility to tailor their orders to appeal to their party size specific tastes of dietary preferences.
Partnerships are also remain a big focus for US we continue to expand our e-commerce presence to a wider pool of potential customers beyond our core ecosystem, including our gift card sales.
Customers can now purchase a blue apron get digital gift card on Costco Dot Com. This allows us to bring a gift option to their customer base at a great value, especially as gift experiences are growing in popularity.
In addition, starting in October a selection of our popular meal kits along with our seasonal boxes are for sale online in the U S Amazon stores without a subscription.
To do so effectively by leveraging the process. We established earlier this year when we introduced our product on another ecommerce platform.
While the kids are sold on Amazon Dot com the boxes are directly fulfilled by us taking advantage of our ability to ship boxes within one business day.
Furthermore, we continue to work with our current enterprise partners and look for additional opportunities to expand these efforts.
We view our enterprise sales is a good way for us to further build brand awareness and drive revenue and customer growth.
We also continue to focus on ESG and had several notable notable developments this quarter, including the launch of our inaugural ESG report to better living roadmap. This.
This report details Blue Aprons, ESG progress through 2021, and also highlights our first ever says the report.
The ESG roadmap focuses on three key priorities people product and progress and details our actions along with key initiatives against each of these areas.
We also signed a partnership with Planet Board, leading carbon management platform for consumer companies as they look to take proactive steps to work towards our net zero goal.
Lastly, we also joined the United Nations Global Compact initiative as a participant we have committed to elevating our role to show the different ways. We can help support the outcomes of the United Nations 17 sustainable development goals.
Before I turn the call over to Mitch I want to reiterate that we continue to drive towards our goal of achieving long term sustainable growth in the future. We are implementing initiatives designed to address key fundamentals, including margin levels P T G&A and marketing.
With that I would like to turn the call over to Mitch for a review of our financials Mitch.
Thank you Linda and good morning, everyone, great to chat with you today.
That's moved to discuss we completed and announced the more market offering offering.
Early October and not receiving after not receiving funding from Mr. Sandbags affiliates is expected by September 30th.
The offering helped them enhanced short term liquidity and keep us in compliance with all financial covenants.
Part of the offering we sold approximately $4 6 million class a common shares at a sales average sales price of $3.25 for approximately 14 1 million after fees and commissions.
Our current cash position towards the end of my remarks.
With the execution of the Yadkin market offerings, we exhausted our prior shelf registration statement.
Today, we filed a universal shelf registration statement with the registration of a $100 million with shares of class a common.
Stock senior or subordinated debt securities preferred stock and warrants.
With this backdrop, let me run through our quarter performance touch on some of the cost saving initiatives we implemented.
Starting with the top line third quarter net revenue was $109 7 million down 4% sequentially and roughly flat with the prior year.
Sequential decline was primarily tied to seasonality and the presence of a bulk sale to an enterprise customer in the second quarter.
As Linda highlighted average order value hit another all time high of $70.83, while average revenue per customer also a new record at $340.
Price increases introduced over the summer along with added variety and customization of our menu.
The strong performance average orders per customer slightly declined sequentially from 4.9 to 4.8 due to the seasonal uptick in travel in the quarter.
Jeff will also adult also drove a decline in total customers at 323000.
Customers are paring back their spending over inflationary concerns also impacted our customer count in the quarter.
Turning to expenses variable margin was 32.2% representing a decline of 250 basis points quarter over quarter, and 90 basis points year over year.
The decline was due primarily to increased packaging and shipping costs alongside the reduction in total customers in the quarter.
Past summer, we experienced warmer than usual temperatures across the nation, requiring us to add additional packaging to keep food fresh.
We also experienced supply issue on one ingredient and really just a logistics issue and we're working to recover the associated costs.
In the third quarter P. T G&A costs totaled 37 million compared to $35 2 million in the same corridor last year, mainly driven by an increase in consulting spend to support our strategic priorities.
Moving forward, we believe that we will achieve savings through the cost management initiatives, we have begun and we have begun identifying and implementing.
And remain focused on optimizing our cost structure and improving margins. In addition, we pared back marketing spend.
In the quarter in Q3 marketing spend was declined 21% to $17 3 million in Q4, we expect marketing expenses to be relatively flat versus Q4, 2021 levels as we look at the managed spend and invest in areas better ROI.
Looking at our bottom line, we reported a net loss of $25 8 million and adjusted EBITDA loss of $17 5 million operating cash flow was a negative $20 7 million.
At the end of Q3, we had cash and cash equivalents of 31 million.
Which excludes the approximately $14 1 million after fees and commissions that we received from the completion of our ATM shortly after quarter end.
As Linda discussed earlier, we remain active in discussions with Mister Sandburg regarding his funding on November six we entered into a pledge agreement under which an affiliate of his granted US a security interest in certain assets of private companies.
It's a value that made it to be significantly and absolutely in excess of the $56 5 million owed to us under the O J B private placement agreement.
Additionally, we're working on a number of cost savings and Theres just initiatives and in discussions with financial advisors to evaluate financing and other alternatives.
We also are in discussions with our lenders as assuming we receive no funding from Mister sandburg or other sources.
That could be in breach of a minimum liquidity covenant.
Covenant is.
Early as later this month.
We believe the pledge from Mr. Sandbug affiliates gives us an alternative paths to secure the funding and demonstrations of our lenders, we're taking necessary steps are there.
Sir your actions to secure liquidity Bradley before I turn it over to Q&A.
Let me touch on briefly I'll briefly on the outlook.
Because we have not yet received the anticipated pause from Mister Sandburg affiliates.
Withdrawing our previously announced revenue growth target of 7%, 13% full year 2022.
Moving forward, we will remain focused on achieving adjusted EBITDA profitability in the future and we will evaluate providing updated targets. Once we have more clarity on our liquidity position.
With that let us open up the call for your questions.
Later.
Thank you we will now begin the question and answer session.
I ask a question you May press Star then one on you touched on phone.
If you were using a speaker phone we ask you. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Today's first question comes from Maria rooms Canaccord. Please go ahead.
Great. Good morning, Thanks for taking my question.
You've done a great job kind of diversifying your menu and you have been investing in incremental marketing I think if you look at year over year trends, but I think you did mention a little bit less efficient spend here in Q3, but maybe more broadly can you talk about some of the factors influencing sort of your ability to grow subscribers at this point.
Yeah, absolutely. So I think that thank you very much for the question by the way Maria.
I think that there are several factors, but they were looking at when we think about balancing our managing our cost structure and also looking at growing marketing. So what we've actually seen is the infrastructure that we've put in place on the marketing side will pay off as we take two or more performance and data driven approach them in our marketing going.
So we've already started making some changes to increase efficiency in our marketing spend and redirect dollars towards places where theyre going to have the highest ROI. So we see several opportunities to make them make changes when it comes to digital marketing spend there can be a lot more efficient.
Also secondly, we did make some significant brand investments, which as you know are part of the additional costs that we saw in Q1 through Q3, while.
While we plan to curtail some of those brand investments we have made great progress in establishing long term audience schools with those actions and that's been very positive for what we see on marketing going forward.
And then finally, we do continue to use some of these other non traditional sales such as enterprise in Bulks get bulk sales to expand our reach to new customers again, some of those get counted in our customer count and some of them don't because of the nature of the of how we count our customers.
So we're looking at ways that we can take some of those additional channels that we're using including the Amazon announcement, and our new Costco a gift card sales channel to increase our customer numbers going forward by converting them into subscribers and we're continuing to expand the non subscription business. So I do think what you're going to see is well.
Still have a significant marketing spend a lot of that is gonna be directed very closely towards performance and data driven channels rather than spread across some of the the brand channels that we were doing before which will increase efficiency.
Got it that's very helpful. And then secondly, now that you are in sort of a new retail channels like Amazon do you expect to see different seasonal impact in Q4, given sort of your broader presence.
It's a good question and I I actually don't know that we're going to see different seasonal impact from those additional channels at this stage. It's still very early in the development of those as new distribution channels and we continue to explore more I do think that you're going to see a bit of a difference in seasonal impact partially because we are seeing shifts in travel.
<unk>, but also partially because we have introduced more of these seasonal and special occasion boxes, which have driven a lot of our seasonal growth in the past and we now have new offerings that we didn't have in previous years, and so that's probably where you're going to see a slight shift in seasonal trends compared to say the additional channels if that makes sense.
Got it thank you very much for the color.
Thank you.
And our next question today comes from them.
Benchmark. Please go ahead.
Yeah. Thanks, good morning.
Kind of a follow up on sort of that line of questioning just maybe around messaging here.
You guys made some prepared remarks around a little bit of curtailed spend from the consumer you know we've had this sort of.
Yeah philosophical debate as to why the consumer isn't necessarily recognizing that.
Blue apron is a better value than grocery at this point given ongoing elevated prices at grocery and as the consumer continues to kind of reevaluate spend even though apparently travel seems to be immune to that.
How do you think about sort of your own go to market and try to reinforce that messaging and not sort of fault rates and just the broader economic pullback.
It's a great question, Dan and I I I actually think that there's a couple of key aspects. There. So in the way that we're approaching our marketing spend when by reducing them into the performance channels, we're able to sorry by reducing some of the upper funnel brand spend because we've been able to build such a strong audience and we've been able to elevate that.
And equity during the last three quarters and what we are actually able to do is test more and and more broad messaging around kos.
Cost and a cost benefit. So you are correct that we are still able to source below the P. P. I and we are still able to manage our our pricing to consumers to be below what they might see in the grocery store, depending on the recipes et cetera, and so I'm getting that message out and our performance marketing channel.
Is actually a big part of a big part of our strategy going forward. The other thing. That's also a big part of the strategy going forward as people think about value Theyre really balancing this concept of quality.
Compared to price and that's one of the other advantages we have because of our direct supply chain and the quality of our our ingredients. We are able to really hone our message and demonstrate that value not only through being a better value from a cost perspective, but also getting higher quality ingredients.
So by redirecting a lot of that marketing spend into the performance channel, we're able to put more messages into the performance in into the performance channel that tend to be in a more targeted way and really reach out to audiences directly but it is a critical part of our strategy going forward.
Got it that's helpful. And then I guess I'll try to ask this question a little bit eloquently.
<unk> talked before about partnership and enterprise.
Shin from ear.
How much is the does the funding issue way on those conversations right now frankly in and if you work you resolve that.
Would've thought we might have had an announcement by now or you know it felt like you guys were building momentum. So just you know it is a contemplation on that side of the equation at the moment.
Well I mean, I think it's fair to say that of course, the funding conversations way on an all discussion is not just on on sort of the enterprise and bulk sales, but we continue to support our existing enterprise customers. We continue to to cause if it would be in discussions with new enterprise customers that just didn't close in Q3 and we.
We also do continue to launch new channels like Amazon and Costco.
In this process. So we are continuing the momentum on it.
But clearly you know our biggest focus is making sure that we are able to secure funding into the business and continue our focus very directly.
And at that point I Wonder just on marketplace expansion and you know how much I know you have to get this probably resolved, but that doesn't take away from sort of the underlying work in terms of some of the marketplace expansion you were discussing before.
Correct, Yeah, no. We're full steam ahead on all of the marketplace extends expansion work that we're doing that is a we think a great opportunity not only to extend the sale of the products that extend the brand.
And again as we've said in previous quarters. Some of the most exciting things that we're doing on on those does E. Commerce partnerships are really about the technology that we built in order to support it that allows us to ship within one day and increase our distribution channels further.
Got it Super helpful. Thanks for the color I appreciate it.
Thanks, so much Dan.
And our next question today comes from Ryan Meyers of Lake Street Capital markets. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions you called out in the prepared remarks, you're implementing some cost reduction initiatives are just sort of wondering if you can provide some more specifics on what exactly you guys are doing sort of walk us through kind of what levers you can pull I know marketing is a big a big.
The big one there, but you know what what sort of detriment will that have on revenue growth just kind of understanding some of those initiatives would be helpful.
Oh, well high level, where we're looking at you know again marketing consultants.
Professional fees.
But really taking a hard look at P. T G&A here.
As the new Guy here, we have the fresh look the ability of a fresh look and.
There are places we are have identified and we have to go forward and execute on our plan.
Yeah, I think what we've been able to do so far is really look at opportunities to optimize the marketing spend where we hope to actually gain efficiency through some of those reductions and I think the similar a similar concept applies when we think about real estate when we think about human capital where right now we're at at the at the space, where we're able to.
To actually optimize the the efficiency of the organization.
In a way that it helps propel growth rather than necessarily being a hindrance on the business.
So we're always looking at across the board different opportunities to save money, but an important aspect of this too is what we talked about are really addressing our variable margin margin and really addressing the efficiency of the marketing spend because that's where you're going to see the biggest opportunity from an ability to make cash go longer.
<unk>.
Got it that makes sense and then I know a couple of questions you sort of talked about it a little bit but I'm wondering what you can give us as far as demand from the Amazon and Walmart Dot com partnerships have you guys seen quite a bit of orders from there and I'm not sure if you're just schools and kind of how much revenue during the quarter that was but I think any sort of specifics around that would be helpful as well.
Yeah happy to happy to sort of touch on that but it is still very early in the relationship. It has not become a significant portion of revenue yet.
But I will say that we are seeing continued uptick, particularly with our new Amazon storefront and so we continue to develop that as we look towards the future quarters, but right now it's not large enough that we would necessarily break it out a majority of what you're seeing in the ability to create revenue strength in the quarter compared to.
Year over year, meaning in other words compared to the customer number and also year over year comes from the additional product offerings and continued pricing initiatives.
Got it that makes sense thanks, guys.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one.
Our next question comes from Mitra <unk> with Sidoti. Please go ahead.
Yes, good morning, and thanks for taking the questions first just wanted to follow up on the Walmart Amazon relationships, obviously, it's still very new but just curious if youre seeing.
Seeing any conversion to subscriptions yet.
So we're actually we are seeing some conversion to subscriptions, but again it is still new enough that we wouldn't necessarily reveal those numbers part of what we are seeing is some people do continue to want to buy non subscription even if they are buying every week, that's just something that they prefer to do.
Rather than committing to a subscription and then others are seeing the value of the subscription and potentially converting into it but it is still very early.
Okay. Thanks, and we are almost midway through the fourth.
Fourth quarter are you still seeing a lot of pressure in terms of higher shipping packaging costs et cetera, or is that starting to stabilize.
There has been some stabilization shipping remains an issue.
Fedex and the likes have the ability to just raise your prices on us food prices are off only slightly I believe.
Our labor cost has gone down a little bit.
And packaging, yes, we have seen some stabilization in packaging because of course the other thing to remember is Q3 is always our most difficult margin quarter because of the seasonality and we had a particularly hot summer. So so you're always going to see increases in in packaging in particular in order to keep the food safe and as it transfer.
Courts.
So we do they're not evidenced by the weather in New York today have a bit of a have a bit of a repreve when it comes to the heat on packaging.
Right right. Okay. No. Thanks, and then I know, it's a delicate in terms of I'm trying to implement price increases and keep customers.
If you could maybe give us some more color on that front in terms of as you implement the increases it's more about trying to recapture the food cost or is it also just everything else in terms of as you mentioned the shipping packaging fuel et cetera and.
Yeah on an impact in terms of the cost stores mature.
Yeah sure. So just as a reminder, we've done two price increases over the last year and a half or so the first price increase was specifically to adjust for logistics and shipping and then the second one was much more directed towards food costs as far as coverage, what we have seen from the customer is again.
We're seeing normal consumer behavior, when you see economic conditions like this but but what you arent seeing isn't necessarily people resisting the price changes given the fact that we do continue to see a position as a better value than going to the grocery store them in many instances so.
So I think that part has been an advantage to us and that's part of what Youre seeing the evidence in the continued record a O V and our revenue per customer that we were able to achieve this quarter of people are understanding that the price increases and we were very careful to make sure that we were remaining in line with competitors, but also a good value for the quality of ingredients.
Once in the box.
Okay. Thanks for taking the questions.
Thanks, so much Mitra.
Thank you, ladies and gentlemen, this one.
Question and answer session I'd like to turn the conference back over to Linda Findley for any closing remarks.
Thank you so much. Thank you for your time today, we look forward to providing an update when we report on our fourth quarter and full year results. Early next year in the meantime, if you have any additional questions. Please don't hesitate to reach out to us directly.
Thank you Ma'am. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.