Blue Apron Holdings Inc (APRN) 2021 Q1 法說會逐字稿

Good morning, and welcome to the Blue Apron Holdings First Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. And as a reminder, this call is being recorded today, Thursday, May 6, 2021, 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. (Operator Instructions)

On this morning's call, we have Linda Findley Kozlowski, President and Chief Executive Officer of Blue Apron; as well as Randy Greben, 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 today's call about its future expectations, plans and prospects constitute 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 in 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, and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, reconciliations of certain forward-looking non-GAAP measures referred to during this call are included in our earnings release, which is available on the company's Investor Relations website located at investors.blueapron.com under events and presentations.

And with that, I would now like to turn the call over to Linda Findley Kozlowski, Blue Apron's CEO. Linda?

Thank you, Jim. Good morning, everyone, and thank you for joining us today. Our first quarter results demonstrated another quarter of growth in our business, with approximately 27% year-over-year revenue growth and another quarter of meaningful improvement in many of our key customer metrics. The improvement in our business continues to be driven by our growth initiatives, which include new product innovation that further differentiates Blue Apron from our peer set. We continue to make progress with the implementation of return-focused marketing initiatives. We also have seen a positive impact from the changes in certain operating practices in our fulfillment centers that have helped make our operations more efficient.

Overall, first quarter net revenue, adjusted EBITDA, and net loss were in line with guidance we provided at the time we reported our fourth quarter results call in February. Turning now to some of the first quarter highlights, customers rose both year-over-year and on a quarterly sequential basis, reflecting the benefit from our marketing investments in the quarter, as well as our ability to efficiently attract high-quality customers based on our product innovations. While we continue to see some benefit to demand from the pandemic, we are also seeing sustained levels of heightened customer value, even as more people are being vaccinated and travel levels increased.

The progress we're making on our growth plan is also evident in the year-over-year improvements across certain key customer metrics, which demonstrate the higher value we are generating from our customers. Orders per customer were up approximately 15% year-over-year for the second consecutive quarter. Average order value increased approximately 7% year-over-year to a record level, and average revenue per customer rose 22% from the prior year to $331.

Looking ahead, as Randy will review in additional detail in a few minutes, we expect second quarter revenue to improve over the same period in 2019. We believe Q2 2019 is a more appropriate benchmark than Q2 2020, given that the year-ago quarter results reflect the initial and the greatest impact of the pandemic on our business. In addition, Q2 2019 was still benefiting from the tailwind of the additional $70 million in acquisition marketing spent in the prior year. That quarter also represents what we historically have seen in terms of seasonality between Q1 and Q2.

We also expect that the second quarter of 2021 revenue will outperform pre-pandemic second quarter seasonality. For the full year, we anticipate high single-digit to low double-digit revenue growth compared to 2020. The expected full-year growth will be driven primarily by our ongoing new product initiatives and marketing efforts, even as tailwinds from the pandemic subside.

I joined Blue Apron a little over 2 years ago, and I'd like to step back to provide some perspective on the business improvements we made during this time. When I started, we said that we would focus on attracting high-quality customers and creating value, and we have done just that. To illustrate this point, average revenue per customer rose 28%, or by $73 each, compared to the first quarter of 2019. The improvements that led to this achievement also helped drive consistent top line growth over the last year, while establishing a foundation for us to meet our goal of achieving consistent annual positive adjusted EBITDA. And looking at Blue Apron today compared to April 2019, many things about our business and our operational practices have evolved. We continue to leverage our strong brand equity and the unique ingredients and flavors we offer to retain and attract high-quality customers. Affinity for the Blue Apron brand is the foundation on which we are building and launching our new products and operating efficiency initiatives, resulting in this runway of consistent improvement.

I'll highlight some of the changes we've made over the last 2 years and start with product innovation, which we have discussed before as a key driver of our business growth. Compared to 2 years ago, we now offer significantly more choices for our customers. This includes additional flexibility with customizable recipes and their ability to order more blue Apron each week. Customers can now add more recipes to their box and order a second box of meals each week and wines each month. We also offer more variety across our menu, which now features 35 weekly options, compared to 17 weekly options in January of 2019. We've also introduced meal prep, a single prep and streamlined cooking session for 4 different recipes in as little as 90 minutes. Meal prep reduces the time our customers need to spend in the kitchen and offers them a wide variety of ingredients and tastes to enjoy throughout the week.

Our premium offering remains popular with our customers. The specialty proteins like duck and scallops, the advanced culinary techniques, and the unique flavor twists help drive repeat customers. When we launched our broader Wellness 360 campaign, we introduced our wellness menu with a wide variety of vegetables, fruits, whole grains, and lean proteins. To date, this offering has proven to be a popular option with our customers. In the short few months since launch, we shipped over 1.3 million boxes containing at least one wellness recipe, and this customer segment has become our highest-value segment since I joined.

Building on the positive feedback we've received in our customization options, I'm excited to announce the launch of add-ons as a way to add an appetizer, side dish, and dessert to your box each week. With this addition, we are offering our customers new ways to enjoy Blue Apron, as well as addressing different eating moments throughout the week. This is just the beginning of how we plan to use add-ons, and we look forward to expanding the offering over time. This option is currently available to all customers exclusively on our mobile app, and we plan to launch it on our website in June.

These are just some of the new product innovations we've introduced over the last 2 years. They have helped to further differentiate Blue Apron and drive consistent improvement in our average revenue per customer. We have more exciting new product offerings that address different meal options planned for this year and believe they will help keep our top line growth momentum going.

Over the last 2 years, we've also focused on becoming more efficient across our operations. With improved planning and forecasting processes now in place, we've been able to further reduce our food waste, even as we enhance the variety and quality of our ingredients. Compared to 2019, and taking away the different challenges of operating during a pandemic, we have also lowered our packaging costs. We were able to do so through more strategic sourcing efforts, including a now streamlined process of identifying and onboarding suppliers, as well as optimizing our packaging configurations to adapt to seasonal weather ships. We implemented those cost savings while making our boxes more sustainable, and we now use 16% more recyclable content.

In that regard, we continue to optimize our fulfillment centers by better leveraging labor, packing, and equipment. We now include more prepackaged ingredients in our boxes, allowing us to optimize additional labor resources. Since we first started focusing on these efficiencies in the second half of last year, we have applied our practices across both fulfillment centers and see a continued decrease in labor required per pack line and labor minutes per box.

As a result of the progress we've made, and as labor constraints have declined from the highest levels of 2020, we believe we are generally capable of addressing the current and forecasted demand by utilizing our fulfillment centers in Linden and Richmond. As such, we recently closed our Arlington facility, which we had temporarily reopened and operated for the first quarter of 2021. We expect this will benefit our variable margin going forward. We are proud of the world-class facilities we have built, and we feel they are a key advantage in our ability to scale, and we aren't the only ones to be impressed. Blue Apron was recently featured on the History Channel's Modern Marvels for the innovative process by which we source, fulfill, and deliver high-quality ingredients to our customers.

The last thing I want to spend a little time highlighting is that, over the last 2 years, we've been rebuilding our full marketing function and still have a significant opportunity ahead. In addition, as we continue to assess our marketing mix, we're expanding into new channels with new efficiencies. We plan to continue to lean into partnerships to help attract new customers and retain current ones. This quarter, we are collaborating with Walt Disney Studios for a second time to create a menu and celebration of the release of Disney and Pixar's original feature film, Luca, which will be streaming on Disney+ beginning June 18.

In addition, as part of our Wellness 360 campaign, we've partnered with Calm, the #1 app for sleep, meditation, and relaxation. We are also expanding our WW partnership and now feature a WW-approved option on our weekly meal prep menu. Through our Chef partnerships, we help our customers explore their culinary curiosity and give them the opportunity to discover new cuisines, ingredients, and cooking skills. This quarter, we partnered with culinary Icon Chef Roy Yamaguchi to create Hawaii-inspired recipes featuring new cooking techniques.

While we still have work ahead of us, we've made a lot of progress against our marketing goals. We are driving better returns on these investments, including metrics such as better quality, engagement, and retention rates compared to what we were previously achieving. As we continue to optimize our marketing programs, we plan to drive additional demand by stepping up our marketing with higher investment compared to recent years, while still positioning the company to drive higher variable margin, as we expect to continue to benefit from our new operating efficiencies.

I hope this provides some added perspectives on the positive changes we've made across our business and operations since I joined. These efforts have helped establish a stronger foundation for Blue Apron to generate consistent top-line growth, and ultimately achieve our goal of being adjusted EBITDA positive on an annual basis.

As I said earlier, Blue Apron is built on a strong brand, loyal customers, and exceptional meal offerings. I am tremendously proud of all the progress we've made over the last 2 years, and we have built a well-thought-out plan in place to achieve continuous improvement. When you put all of these factors together with heightened interest in both cooking at home and meal kits, I believe Blue Apron can continue to grow by attracting new customers and retaining current ones through continued product innovation and engagement. As a result, I believe we have a better foundation for our business than any other time since I joined the company.

As always, we appreciate our long-standing customers, as well as those who have recently turned to Blue Apron. We take seriously our commitment to provide every customer that invites us into their homes with a quality meal experience and world-class service. Every day, we seek to improve so that we can retain our customers and attract new ones.

I will now turn it over to Randy to talk about our financials in more detail.

Thank you. Thank you, and good morning, everyone. As highlighted in this morning's release, our first quarter results were in line with the guidance we provided in February, with net revenue of $129.7 million, coming in about $700,000 above the high end of our guidance range. Net revenue rose 27% year-over-year and represented our fourth consecutive quarter of double-digit year-over-year growth.

First quarter meal kit demand continued to be driven by our more expansive menu offerings, the continuation of our successful partnerships, and rollout of new products, such as customization. As Linda highlighted, product innovation, which includes add-ons, the newest introduction to our menu, is one of the key pillars of our growth initiative, and we expect to continue to launch new products over the balance of this year. As previously stated, we plan to support these expansions with higher marketing spend compared to last year. As we reviewed on our fourth quarter call, we have increased our marketing investment over last year, with first quarter spend of $19.9 million, or 15.4% of net revenue, compared to $15 million, or 14.8% of net revenue, in the first quarter of 2020.

Turning now to a review of our key customer metrics, which continue to reflect the benefit from our focus on customer engagement and retention, we had 391,000 customers in the first quarter of 2021, up from 376,000 in last year's first quarter, and also up on a quarterly sequential basis. Orders per customer of 5.4 remained at improved levels and were up 15% year-over-year, while continuing to (inaudible) around the highest levels reported. Average order value was a record $62, compared to $58 in the first quarter of 2020. Average revenue per customer was more than $300 for the fourth consecutive quarter, rising 22% year-over-year to a record $331. Reflecting our operating momentum, the last 4 quarters have been the only time Blue Apron has recorded average revenue per customer of more than $300 since prior to 2015.

On the cost side, cost of goods sold, excluding depreciation and amortization as a percentage of net revenue, increased year-over-year by 340 basis points to 62.9%. The increase is primarily due to an increase in food and labor costs, due to investments made to increase fulfillment center capacity, with a majority of these to be nonrecurring, as they are directly related to the impact that the pandemic has had on our operations. These costs were partially offset by a decline in our external packaging costs, due to packaging improvements.

Our variable margin was 37.1% in the first quarter of 2021, compared to 40.5% in the first quarter of 2020. We expect margins to normalize going forward. On PTG&A, we continued to demonstrate cost control in our product technology and G&A costs. In Q1, PTG&A as a percentage of net revenue was 28.2%, declining 540 basis points compared to the year-ago period.

I also want to highlight one other thing on the cost side to provide additional context around some of the headwinds Linda highlighted as we operated throughout the pandemic. Since last March, we've increased our sanitation and safety protocols in our fulfilment centers to keep our team members as safe as possible. These measures include additional cleanings, providing masks to all employees, implementing health and wellness screenings, and (inaudible) physical barriers. We've also had higher costs for temporary labor and employee attendance bonuses during this time. Over the last 4 quarters, or from Q2 of 2020 through Q1 of 2021, we estimate the higher level of costs directly associated with enhanced COVID-19 related to these protocols and for temporary labor and attendance bonuses totaled approximately $4 million. This includes $2 million in the first quarter to support the mandated weekly testing of our employees. While these costs are expected to remain elevated for some time, we do expect they will begin to decline this quarter.

On the bottom line, we reported a net loss of $15.7 million and an adjusted EBITDA loss of $6.1 million, both of which were in line with our guidance. We recorded negative operating cash flow and free cash flow of $12 million and $13.7 million respectively, both of which are improvements compared to last year's first quarter. We expect our cash burn rate to decline through the rest of 2021 as we leverage investments made in the first quarter related to the prepositioning of inventory and other assets that we plan to use to drive our business through the balance of the year, in addition to the normalization of working capital timing.

At March 31, 2021, we had cash and cash equivalents of $29.6 million and $3.3 million in total outstanding borrowings under the senior secured term loan, of which $29.8 million was classified as long-term debt and $3.5 million was classified as the current portion of long-term debt. We have also amended our term loan to provide us with more flexibility around our accessible liquidity. You can reference our Form 8-K that was filed with the SEC this morning for more details.

Turning to our financial outlook for the second quarter, let me first share some assumptions. Our guidance assumes both the consistent benefits to our business from the execution of our strategic growth initiatives and ongoing operational improvements. It also assumes planned investments and marketing initiatives, as well as our ability to manage liquidity in compliance with our debt covenants. Further, our guidance assumes the return of seasonal fluctuations to the historical (inaudible) we experienced pre-pandemic, reflecting that there may be a decrease in the impact that it's had on consumer behaviors relating to cooking at home, as restrictions continue to be lifted and more people are vaccinated. Lastly, the guidance assumes that we will not experience any unforeseen significant disruptions in our fulfilment center operations or supply chain.

Before sharing the 2021 second quarter guidance, it is important to note that the 2020 second quarter reflected the largest benefit from stay-at-home orders related to the pandemic, with customers looking at many options for bringing food into their homes, including Blue Apron. As more of the country has reopened, and as more people get vaccinated and begin to travel, we do not believe that last year's second quarter is the best benchmark to gauge our continued progress.

Reflecting these factors and assumptions, we expect second quarter net revenue of approximately $122 million to $126 million. Compared to the 2019 second quarter, the revenue guidance reflects an approximately 2% to 6% increase. While this guidance reflects a sequential decline from Q1, which has historically been our seasonally highest quarter, I note that it is a smaller sequential decline than we have seen previously, when factoring out Q2 2020, not [impacted] by normal seasonality as a result of the onset of the pandemic in the United States.

It's also (inaudible) the expected growth rate over the 2019 second quarter reflects significant better key customers. Even while customer count is down 13% from the second quarter of 2019, we are deriving materially more value per customer, with higher average order value, orders per customer, and average revenue per customer. This is a result of our focus on attracting and retaining high-quality customers with deep brand affinity through more efficient marketing, as well as product innovations and operating efficiencies.

(inaudible) we expect to incur a loss of no more than $17 million in the second quarter and an adjusted EBITDA loss of no more than $7 million. For full year 2021, we expect to achieve high single-digit to low double-digit net revenue growth, with the expectation that the second half of 2021 will return to growth after the narrow declines we're forecasting for Q2.

Before taking your questions, I'd now like to turn our attention towards the longer term. As we look to 2022, and as the business is expected to return to its pre-pandemic seasonality and variable [market trends], we expect that sales leverage, together with additional operational efficiency improvements, continued marketing efficiencies, and cost containment in PTG&A will contribute towards Blue Apron generating its first full year of positive adjusted EBITDA. For easy reference, a reconciliation table from net loss to adjusted EBITDA is included in our earnings release, which has been posted on Blue Apron's Investor Relations website. Linda and I will now take your questions.

Randy, thank you. (Operator Instructions) We'll hear first from Maria Ripps at Canaccord.

I just wanted to ask you about your full-year revenue outlook. Can you maybe expand a little on what you're seeing, either in customer behavior or sort of the competitive landscape, that now drives a little bit lower expectations for the year?

Sure. I can start on that, and then Randy can jump in with any -- thank you, Maria, for the question. So we're still actually seeing very, very strong behavior from our customer base. As we said last year and sort of earlier this year, we were very focused on building product innovation that would drive sustainable growth. So we were focused on creating value, and that's where you're seeing some of these continued record numbers around value coming from, as far as revenue per customer, et cetera. So we feel really good about what we're seeing when it comes to behavior coming through the pandemic, because of the work that we've done around higher quality customer attraction and retention, as well as initiating some of these product initiatives that will continue to sustain in post-pandemic times.

So we're seeing very good strength in those customer numbers, but we do see a little bit of a lap in Q2 as expected. But what we are seeing through the rest of the year is just focusing on how we continue to scale our marketing program to build out new technologies, new channels, et cetera, on top of that value that we've actually already created. So really, it's just about looking at the rest of the year and thinking about all the different puts and takes throughout the year and how we can continue to expand into new marketing channels as we build on the rest of the year's opportunities.

I'd add to that that our focus continues to be on driving the strong key customer metrics that we've been talking about. And as we look at the forecast through the balance of the year, we expect these key customer metrics to continue to expand as we continue to deliver on product initiatives and give customers more opportunities to derive more value from Blue Apron products. We're seeing those trends continue to expand and accelerate.

That's very helpful, and maybe one follow-up, if I could. So we know that Q2 is a seasonally sort of slower quarter for you. Are you able to share with us any color in terms of what's implied in your outlook for customer additions for the second half of the year? Or maybe just talk more broadly about, how should we think about sort of customer trends for the balance of the year?

Sure, so…

I think as it relates to customer…

No, go ahead, Randy. You start.

I'll take the second half and then maybe kick it back to Linda for the first half of the question, go a little bit out of order. As it relates to key customer trends, what I think you should expect is our seasonal curves to look more like they did pre-pandemic, with continued customer growth. I will say that we are more focused on deriving maximum value per customer than pure customer growth in terms of total numbers. That being said, customer growth is a key component of our growth strategy, albeit making sure that we are bringing in the highest-quality customers possible. Linda, anything to add?

Yes, sure. I'll just say that we are being consistent with what we've said before that we don't want to go for growth at all costs, and we continue to focus our efforts on driving customer growth. As we talked about sequencing our strategy earlier, we talked about first, really deriving significant customer value by adding flexibility, variety, choice. That is what you're seeing pay off in those key customer metrics. And then layering marketing on top of that so that we can take advantage of those efficiencies that we see in the product and increased values in each customer that we bring in and also retain. And so, we are planning on continuing to lean into that marketing through the rest of the year to build on top of those product initiatives, as we look at driving customer growth going forward.

(Operator Instructions) We'll pause for just a moment to give everyone a chance to signal. We do have a signal coming in from [Ariel Kohl] with -- or excuse me, [Aria Kohl] with [Kohl Capital].

Quick question about the recent customers who were added in the first quarter. Linda, have you -- what sort of feedback have you gotten so far in terms of the behavior of the new customers in terms of their frequency of order and average order size, relative to the older base of customers you have? What I'm really trying to understand is, how effective have you been, when you bring in new customers, in bringing in the high-value customers you seek versus customers maybe that are ordering and generating less revenue than the more tenured customers?

Thanks so much for the question, [Aria]. Actually, this is one of the things that we're particularly happy about as we look towards the sustainable trends towards growth. One of the things that we stated in this morning's discussion was that the Wellness 360 program that we launched in Q1 is bringing in some of our highest-value customers that we've seen since I've joined the company. And the interesting thing about that wellness program is, it isn't only a new customer acquisition program, but we have existing customers that, of course, are taking advantage of that program as well. And so, we're actually able to see -- it's a little bit less about new versus old customers. I think the more interesting aspect is, are we creating offerings that both more deeply engage and create more value in our older customers and our loyal customers, as well as bringing in higher-quality customers.

So again, as reflected in the key customer metrics, we are actually seeing strong value in both the new customers that we brought in in Q1, as well as the existing customers that have been with us for a long time that are more deeply engaging with our products. And it's the combination of those 2 that are actually driving that customer value that we've been talking about, so we think of that as a very positive aspect.

On top of that, of course, we watch very carefully as pandemic behaviors shift, look at some of the recent travel trends, et cetera, and we're able to look at how our customer base behaves during that time. And we are seeing a lot of positive sustained behavior in the value of those customers throughout those fluctuations, as vaccinations are rolled out and travel continues. And that's, we think, a big part of the manifestation of what we've been trying to do, which is really focused on driving that customer value.

Got it. And then one last question for Randy. In terms of goals for the future, can you give us a sense maybe how many customers or what sort of revenue levels or other metrics the company would need to be at in the future to be in a situation where free cash flow turns positive and Blue Apron is self-sustaining as a growing entity and does not need to raise additional cash to help fund future growth.

Sure, [Aria]. It's less about the absolute number of customers and more about the composition of those customers in terms of customers that are driving high order value, ordering with us more frequently. If you think about the quarter that we just posted, Q1, on an adjusted EBITDA basis, if our margin architecture had looked more normal, without some of these one-offs that we had around capacity constraints and other things that we had to do, on a pro forma basis, we would have expected positive adjusted EBITDA in Q1 alone. Cash burn (inaudible) substantially through the balance of the year, and I do expect that we will be in a position to begin generating positive cash flow as we the corner into next year.

And sorry, one more thing I just wanted to build on that. He talked about some of the onetime expenses. Some of those onetime expenses are specific to COVID and employee safety measures that we don't expect to continue as well. Sorry. Go ahead and finish your question, [Aria], I apologize.

No worries. Randy, just to clarify, when in 2022, based on the quality of the customers you expect to have going forward, do you expect to be generating free cash -- to be free cash flow positive for the year? I'm trying to differentiate the term free cash flow from other terms. I'm really focused on that one.

While we're not specifically guiding free cash flow for next year, I do think that you should expect our EBITDA trends and our free cash flow to move in concert.

At this time, we have no further questions from our listening audience. It's my pleasure to turn the floor back over to you, Linda, for any additional or closing remarks that you might have.

Thank you very much. On behalf of everyone at Blue Apron, we want to wish you, your families, colleagues, and friends well and let you know that our teams are working diligently and effectively to bring incredible home cooking into people's homes. We look forward to providing an update when we report our second-quarter results this summer.

Ladies and gentlemen, this does conclude today's conference, and we thank you all for your participation. You may now disconnect your lines, and we hope that you enjoy the rest of your day.