Waitr Holdings Inc (WTRH) 2020 Q3 法說會逐字稿

Good afternoon, and welcome to the Waitr Holdings Third Quarter 2020 Conference Call. With us today are Waitr's Chief Executive Officer, Carl Grimstad; and Chief Financial Officer, Leo Bogdanov. By now, you should have access to our earnings press release. If not, it may be found at sec.gov or our Investor Relations website at investors.waitapp.com (sic) [investors.waitrapp.com].

Before I turn the call over to management, I would like to remind you that certain statements and projections in this call about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements. Please see the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements.

Finally, please note that on today's call, management will refer to a non-GAAP financial measure. Please refer to Waitr's third quarter 2020 earnings release for a full reconciliation of non-GAAP financial measure to the most comparable GAAP financial measure. I would now like to turn the call over to Waitr's CEO, Carl Grimstad, who will give an overview of the company's business activities and development for the third quarter of 2020. He will then turn the call over to Leo Bogdanov, who will provide an overview of the company's operating and financial results. We will then open the call for Q&A. Carl, please go ahead.

Thank you. Hello, everyone, and thank you for joining our call today. We are pleased with our results we generated this quarter, marking a second consecutive quarter of continued profitability and positive operating cash flow. Our profitable results continue to prove the sustainability of our business model and unit economics, even during these difficult times. The restaurant and hospitality sector faces an uphill battle as a result of the duration of the COVID-19 pandemic. Despite impacts from recent hurricanes to our key markets and ongoing pandemic, our results continue to reflect the implementation of many fundamental strategic initiatives around service and profitability. We've expanded our service offerings and increased efficiencies, all while maintaining a cost structure with an eye on a return on deployed capital. Our focus is on continuing to grow and to operate a sustainable business model and bring value to shareholders over the long term. Our recent launch of tableside service technology is a prime example of our efforts to diversify our product offering beyond restaurant delivery, strengthening our market presence.

By combining this tableside service technology with our delivery and takeout ordering services, Waitr now offers restaurants an integrated payment solution that can help them improve their safety protocols, sales and efficiency, both inside and outside the 4 walls of the restaurant. As of today, we already have many restaurants who have signed agreements to utilize the tableside service technology.

Additionally, we have continued our expansion into new delivery verticals, such as same-day groceries and alcohol, all while offering no contact delivery.

During the third quarter of 2020, we also announced the appointment of 3 key leaders: Mark D’Ambrosio, our Chief Sales Officer; David Cronin, our Chief Engagement Officer; and Thomas Pritchard, our General Counsel. Mark, David and Thomas have made immediate impacts in their respective areas of expertise, and I look forward to growing the business with these leaders.

Now I'll turn it over to Leo, our Chief Financial Officer, for a recap of third quarter results.

Thank you, Carl. I'd like to now turn our focus on some third quarter 2020 financial results. Revenue for the third quarter of 2020 was $52.7 million compared to $49.2 million in the third quarter of 2019. Net income for the third quarter was $4.6 million or $0.04 per diluted share compared to a loss of $220.1 million or $2.89 per share in the third quarter of last year. Third quarter 2019 net loss include $192.1 million of noncash goodwill and intangible asset impairment charges, both considered as adjustments within our adjusted EBITDA. Adjusted EBITDA for the third quarter was $13 million compared to a net loss of $15.4 million in the third quarter 2019, an increase of $28.4 million, reflecting the implementation of initiatives around service and profitability. Average daily orders were approximately 39,880 for the quarter. Active diners were approximately 2 million as of September 30, 2020.

As of September 30, 2020, we had cash on hand of $77.1 million, an increase of $10.4 million from June 30, 2020, driven primarily from the completion of our asset market offerings in July and positive operating cash flows, partially offset by a prepayment of long-term debt made to our lender. Total outstanding long-term debt was approximately $99 million, consisting primarily of $49.5 million of term loans and $49.5 million of convertible notes.

Thank you, Leo. With that, we will go into a short question-and-answer session.

(Operator Instructions) And we'll take our first question from Jeff Van Sinderen with B. Riley.

Maybe you could start with any quantification that you have around the impact of the hurricanes on your P&L for Q3, if you have that?

Well, Jeff, as you know and we've discussed, definitely has had an impact on order volume during the quarter. It's -- at last count, I think it's been 6 storms, 4 named storms, and most markets are back and up and running at this point.

One of our larger markets, Lake Charles, is still struggling to get 100% back on its feet. We're really not providing any specifics around the October impact just yet. One caveat I would tell you is it's also hard to distinguish the COVID-19 economics that also played a part in any order denigration during those periods of time, but kind of an unforeseen event that we could do nothing about. The business continues to bounce back in a very strong manner, though. So hopefully, we're at the tail end of the storm season.

Okay. And then as a follow-up to that. If you look at the regions that were not impacted by the hurricanes, can you maybe speak more about what you experienced in transaction count there versus some of the -- we know your overall transaction count. I guess just trying to get a sense of maybe the difference there if that was -- I would imagine it was much stronger. And then maybe if you could touch on kind of the new restaurant additions, the new restaurants you've added and have similar trends as far as adding restaurants continued into Q4.

Right. So first, consistent with how I've been explaining the business from observations of what's been going on. We have this macro overhang of a lot of people out of work. And we experienced order denigration when the pandemic first hit. And then we saw subsidies come in and a massive upswing, obviously, in the second quarter. And I think how I have explained it over time is the water level went up to a certain level and then it leveled off at this higher base.

Our markets, which, as you know, are second and third tier markets, some of which opened up earlier than the bigger cities, a lot of which have unemployment issues and what have you have leveled off. And as we've talked about the COVID-19 impact on our business and how I often think it's been a double-edged sword for us because in one respect, it's been great in that you have a validation, if you will, of third-party delivery. You have the diner universe has gotten bigger. But as it relates to Waitr, and it's somewhat of a turnaround story, if you're a naysayer, you say, well, this is an anomaly that cannot be replicated over time. And what I think the results in the third quarter show us that not only having the headwind of the macroeconomic conditions, but then also the nature's headwind, no pun intended, of these storms, the business continued to perform at a very strong unit economic base level. So what you can infer from that is I almost feel like there's potential upside when subsidies and we come out of this because we haven't completely benefited from the dynamics that has gone on in a lot of the larger cities that have remained under a lot more restrictions in our market cap.

And then to touch on your sales -- touch on your sales question. Still early to call, but I'm starting to feel pretty proud of Mark D'Ambrosio and his team. The new sales compensation package and reshuffling of our sales strategy is really in its infancy. But we are seeing a big increase in restaurants activating on our platform. And numerically, it may not seem a lot to you, but the restaurants that we're activating now actually create revenue. And in the past, we had a sales strategy that was more focused around stick count than it was revenue. So really 2 or -- a couple of months into the new fully implemented strategy, I'm very proud of the direction that we're going in.

Okay. Good. Well, I'll just say, congratulations on growing your business and still delivering what I would consider to be strong adjusted EBITDA despite getting hit by so many storms. So best of luck going forward.

Thank you. Thank you.

And we'll take our next question from Alex Fuhrman with Craig-Hallum Capital Group.

Great. I wanted to ask about some of the components of your revenue and the economics of your orders. It looks like not unlike the first 2 quarters of this year, the number of orders was down and yet revenue was up nicely. Has that been driven more by take rate or basket size? Would be curious what you've been seeing there in the third quarter and heading into the fourth.

Well, I think the unit economics, Q2 to Q3, are pretty similar. I think if you compare the first quarter to Q2 and Q3, it's slightly different because as we've talked about in the past, the service offering in general was behind the competition in a number of our markets. And Alex, we've discussed this in the past. I mean the industry prices in a very similar fashion, right? It's -- the restaurant pays a certain take rate. It could be a teaser rate that a lot of people use of 10% all the way up to 30%. Drivers get paid a delivery charge, they keep their tips. The customer pays a service charge and the delivery charge. There's no special sauce here.

I think if you look across the industry, the pricing, however it's bundled, whether it's initially in kind of a teaser rate, it all moderates to be about the same level. I think that on the basket size, I don't have the actual change from Q2 to Q3, we might have saw a slight decrease in basket size, Q3 from Q2, and that might be a little bit more of a shift to people being more fiscally responsible with subsidies running out, that would be a hypothesis.

But I think in general, we have one of the highest basket sizes in the industry because we focus on independent restaurants that typically have a slightly higher price point than QSR.

Okay. That's helpful. And then if I could just ask about your sales and marketing effort. It looks like sales and marketing dollars are on track to be less than a quarter of what they were last year and that you've been able to generate revenue growth on that. As we hopefully move towards the other side of COVID over the next year or so, do you think you're going to have to reinvest a little bit in sales and marketing in order to continue to drive the stronger revenue levels?

What I would tell you is, if you look at our margins, obviously, we've documented that we can run a profitable business. We have a lot of room there to spend money, right? But as we've also talked about, we can't play the game of spending tens, if not hundreds of millions of dollars, on television ads and what have you. So we're very focused on being as efficient with our capital as we possibly can. But don't misinterpret that to mean that we're not wanting to spend monies on different marketing strategies or promotions or what have you. We have -- the company is in probably its strongest position than it's ever been from a cash perspective. We have a lot of margin to play with, and we're going to do it very responsibly.

And we'll take our next question from Dan Kurnos with The Benchmark Company.

Carl, just a couple of questions. First, maybe we can just go back to just the general economic landscape and comments around mobility and how that impacts. And then obviously, the outcome of the election, if there is a further stimulus at this point relative to vaccine. Sort of your thoughts on how that -- I mean that's probably a sort of a bit broad-brush, how you think about that.

And also as it relates to drivers as well. There's obviously been kind of a huge source of drivers. Does that start to -- as people go back to ride share and other things, does that start to seeing sort of the complexion of the landscape if that starts taking place?

Yes. So a couple of things there. I think there's a general consensus that people need some help. And now that the election is past us, whether that comes in the form of a big subsidy package before the end of the year or we have to wait for the new administration to get in, it's anyone's guess. I think that's upside in our model, for sure.

Like I said earlier, and I guess was reflected in the Market Day, a lot of equities that will "stay at home" businesses got knocked around a little bit today. And I think that we're not at an inflated rate. From what I see in the business, this is kind of the base business where we are today. We're -- we got several things within our business that I think are unique and very positive. But in the short term, it creates a little bit of a headwind, right? The smaller markets, second and third tier, you have a lot of working class folks. They've been economically challenged by this pandemic. These -- and you can't say that these markets have been closed, like some of the major cities. A lot of our southern space have been generally open.

So I think as the economy rebounds and we get subsidies, and then the last part, as a lot of our independent restaurant partners get back online and get back on their feet, I think there's quite a bit of promising tailwind to our particular business versus the 3 big national guys.

Refresh me. That was one part. You were asking about...

About drivers and if there's an impact to drivers.

Yes. Well, look, I think the Prop 22 outcome was more important than any outcome in the presidential election for Waitr, right? I think that's -- even though we're not in California, I think that sets the tone nationwide. I think it's a big win for workers that have -- that love to work as independent contractors. We have driver levels right now that -- I mean, I think last time I looked, we have close to 27,000 drivers. I mean, we have -- and I don't think that's going away. Right? We've talked about it. We have people that just love what they do. And as crazy it might sound to you, we have people making quite a bit of money working in our network, delivering our services. So I don't think that is going away.

And then -- okay. No, no, that's really helpful. And then just one quick one if I could squeeze it in. Just as you -- look, with getting in some ancillary categories, if market expansion is probably not as much on the table. Penetration has always been an area of opportunity for you, and we'll see what your new sales activation, you have a new sales fund yield. But just how do we think about sort of unit economics between as you get more into grocery or some of the other ancillary opportunities you have? Is there any material investment required there? I know it'll be profitable, but will that [speed margin mix]?

No. I candidly said long-term EBITDA margins that I think that our business can maintain are at least 20%. I think the unit economics in some of these other verticals are actually stronger than the pure food delivery margins. So I think there's great opportunity there. And the one thing I'll say, this dine-in product, why it's important for us is it allows us to further pivot the business beyond just delivery, right? This may or may not mean something to you, but this was really an integrated payments business. And this now allows us to expand beyond the delivery markets that we currently operate in to any market across the United States. We can utilize our sales network to sell the dine-in product in any city that there are restaurants. It's a viable product.

And it also allows us in the different markets if you were to get some level of critical mass with restaurant customers because we now have an independent driver network and we have the technology platform. Overnight, you can be in a market with some level of critical mass, without, in the past, having to deploy a bunch of capital, try to develop a market, be well in advance of ever seeing any revenue from it.

So the dine-in product helps us to leverage our sales organization and helps to leverage, obviously, other revenue opportunities and it also allows us to expand the business beyond our current footprint.

And we'll take our next question from Kunal Madhukar with Deutsche Bank.

Congratulations on doing this call. It's been a long time that you've spoken at a public call. So I have a number of questions. One is with regard to the competitive intensity. What are you seeing in terms of competitive intensity in your markets?

Well, as you know, all of our markets have competition. Top 4 competitors in all of our markets have been DoorDash, Uber, Grub and Postmates. Postmates probably the least of which. They continue to have a presence in our markets. We think we have a local advantage in brand loyalty in our core markets. But they're in our markets, they're here to stay. I think if you watch national television, you see that they do quite a bit of advertising. So we're local, we're on the ground, and we have to compete in different ways than these folks compete.

That being said, they're not going to go away and nor are we. I also think that it further points to further consolidation in this space. But in the meantime, we have to continue to grow a profitable business.

That absolutely makes sense. Now in terms of like market shares, how has the market shares trended over the past 1 quarter, maybe 2 quarters, especially the past 1 quarter? In the third quarter, what did you see the market shares trending?

It's generally level. We have a couple of markets that I think DoorDash has picked some market share up on us, really driven by a heavy QSR focus. But we continue to have a strong position in our top 20 markets.

Okay. That's great. That is great. And then one on the multi-vertical delivery. How has that kind of benefited volumes? Is that reported in GFS? Is that meaningful at all?

Sorry. I didn't hear you. I would assume you're talking -- you asked about grocery?

Asking about grocery, yes.

Yes. So we're committed to grocery. It's not meaning -- it's not material just yet, but I think you'll continue not only with grocery, with alcohol and potentially some other verticals that we're going to continue to build out.

Okay. Got it. One of the things that you mentioned was that you had 275,000 drivers at the last count. And if I (inaudible)

Not 275,000. We have 27,000.

27,000. Okay. Sorry. 27,000. So if I use 27,000 and I divide that by the total number of orders, that basically means about 1.5 orders per driver per day.

That's right. If they -- yes, remember, they're independent contractors. They're independent contractors. So not every one of those drivers is even working every day. I'm just telling you, the amount of drivers that we have in our ranks currently is a big number, which gives us a lot of flexibility and those drivers a lot of flexibility.

Of course. Of course. And one last one on the M&A front, and you pointed to further consolidation in the space. You've definitely -- you've tried in the past and it did not quite work out the way you would have thought. But now that like Grub and takeaway and DoorDash -- sorry, with Uber kind of going with Postmates, how do you see consolidation in the space? Is there like an increased urgency? Where do you see the fit?

Well, what I would say, to be clear, I hadn't tried in the past that was past regime. I think the business last year was in a different place than it is today as well as the industry was in a different place.

I think that you're right, we have 3 main players in the U.S., 1 that probably will be a public participant in the not-too-distant future. The other 2 are completing 2 transactions. Candidly, we're a perfect fit for any of them. I also think as we continue to expand our integrated payment solution, the universe of companies that we would fit very nicely with expands ratably.

Got it. I have 2 more, if you don't mind. One is with regard to the ATM program that you had. You are basically selling shares at $2 a share. Is there any plan to kind of have a similar kind of an ATM program in the near term?

Well, that was completed some time ago. And they're -- I don't want to make any comments on the future, but right now, we're in a pretty strong cash position. And as we are -- as we sit here today, it's not something that we're contemplating.

Got it. And Carl, one last one. As we look to like 4Q, you have feet on the ground, you understand the space very well. How do you think we should think about like -- but you haven't given a guidance. So how should one think about like 4Q projections as we bring in all the puts and takes from the hurricane impact versus continuing COVID versus potential maybe lockdowns, but the prospect of a vaccine? How should we kind of think about 4Q within the context of Waitr?

Well, you're right. I don't want to make any forward-looking statements here. But what I would tell you, very consistent, which is what I've been saying for months now, is the business is very stable. Even in the face of things like hurricanes and what have you, the unit economics are not going to change.

That being said, we've had, and you saw the results of it in the third quarter, we had the headwind of people out of work. We've had the headwind of independent restaurants being under pressure. We've had the balancing act of a lot of our markets not being closed, actually being open. So I think with the advent of subsidies and/or a recovering economy bodes well from the baseline that we're at today. So -- and I think hurricane season is over. So that's a good thing, too. So from those comments, I think you can read into how I feel.

And that concludes today's question-and-answer session. Carl, at this time, I will turn the conference back to you for any additional or closing remarks.

Well, all I can say is thank you very much for everyone's patience with the Waitr story. We've been hard at work for most of the year now. I think that the team is doing a great job. We've had a number of curveballs thrown at us, and the team has responded very well. And we hope to continue to do a good job for all of our supporters and shareholders, and we'll talk again after the next quarter. Thanks very much.

And this concludes today's call. Thank you for your participation. You may now disconnect.