Blue Apron Holdings, Inc. (APRN) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to the Blue Apron Holdings’ Second Quarter 2021 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, Tuesday, August 3, 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. On this morning's call, we have Linda Findley Kozlowski, President and Chief Executive Officer of Blue Apron; and 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.
Linda Findley Kozlowski: Thank you, Betsy. Good morning, everyone, and thank you for joining us today. Our second quarter results once again highlight the sustained effectiveness of our growth initiatives, in particular our focus on attracting and retaining high-value customers through ongoing product innovation. Adding variety, flexibility, and choice has allowed us to offer more ways to bring Blue Apron into kitchens each week. This has resulted in consistent growth of our customer value as demonstrated by our key metrics, including the third consecutive quarter of record Average Order Value. In addition, second quarter adjusted EBITDA exceeded our guidance. Net loss also exceeded guidance, after adjusting for a non-cash charge associated with the financing agreement amendment in May, which Randy will discuss further. Net revenue was in-line with our expectations, even without the benefit of the approximately $2 million of recovered customer credits relating to a supplier recall in 2020. Turning now to some second quarter highlights. The continued progress we have seen with our growth strategy is reflected in the sustained levels of heightened customer value, even as more people are being vaccinated and travel is increasing. Orders per customer were in-line with the strong quarterly levels we’ve been recently delivering, and Average Order Value increased both year-over-year and from Q1 to Q2, reaching a record level.
Randy Greben: Thank you, Linda, and good morning everyone. As highlighted in this morning’s release, our second quarter revenue of $124 million was in-line with the guidance we provided in May. Net loss, when adjusting for a one-time non-cash charge of $4.1 million associated with the amendment of our financing agreement was also well ahead of guidance, as was adjusted EBITDA. Net revenue, net loss, and adjusted EBITDA all included the recognition of the recovery of approximately $2 million of customer credits that we issued in the 2020 third quarter, related to a voluntary recall of onions. Second quarter KPI performance was again driven by our more expansive menu offerings, the continuation of our successful partnerships, and the rollout of new products such as Add-ons and Craft Burger. Product innovation continues to deliver as a critical component of our growth strategy and we expect to launch additional new products over the balance of this year to provide additional options for our customers to add to their meal-kits, resulting in higher Average Order Value and Average Revenue per Customer. As previously stated, we plan to support these expansions with higher marketing spend compared to last year. Second quarter marketing spend was $16.3 million, or 13.2% of net revenue, compared to $11.6 million, or 8.8% of net revenue, in the second quarter of 2020. Q2 2020 had low marketing investment as we focused on meeting the heightened demand brought on by the pandemic. Marketing investment in the first half of 2021 was approximately 14.3% of total net revenue, and we expect to continue to spend above last year’s levels in the second half of 2021. 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 375,000 customers in the second quarter of 2021, reflecting a return to normal seasonality, down from 396,000 in last year’s second quarter at the height of the pandemic. Orders per customer of 5.3 continues to track right around our highest levels reported, Average Order Value was a record $63, and Average Revenue per customer was $330. It’s notable that Average Revenue per customer was more than $310 for the fifth consecutive quarter, the only quarters in which we have achieved that milestone since prior to 2015.
Operator: And the first question comes from Maria Ripps with Canaccord. Please go ahead.
Maria Ripps: Good morning, and thanks for taking my questions. First, and, Linda, you touched on this a little bit in your prepared remarks, but I just wanted to ask you about what you’ve seen in consumer behavior as, sort of things are opening up. And are you seeing any changes in terms of how consumers are engaging with your platforms relative to your – with your platform relative to your expectations, maybe either in terms of types of orders or frequency?
Linda Findley Kozlowski: Sure. So, I can touch a little bit on that and thanks so much for joining the call this morning, Maria. What we're actually seeing is, we're seeing continued elevated engagement with a lot of these value-added products that we continue to build into the business. So, we're seeing strength in people looking at some of the premium recipes and add-ons and the customization pieces, and continuing to order those at very elevated levels and enjoy those and using them for more special occasions. We are seeing a bit of a return to health and people getting very, very excited about, sort of kind of focusing on their health and focusing on that dynamic. And so, as we mentioned in our previous earnings call, we can continue to see our wellness customers get stronger and stronger when it comes to their overall value to the business. And that menu continues to engage people extremely well. As far as opening up, we're not seeing a huge number of changes in order behavior. Again, we're still seeing a lot of those very high value customers ordering a lot of the premium and other recipes, we are seeing a little bit of fluctuation in travel, but we're seeing that, sort of ebb and flow, particularly as you start to see new things happening around the Delta variants, and changes in restrictions. So, we are definitely seeing patterns where people are continuing to want to cook at home and being very interested in meal kits as a solution to do that. As far as the most exciting, sort of evolution we've seen, frankly, is what I was talking about with the Craft Burger and some of our premium recipes. People are continuing to lean into those special moments for their family and looking for elevating their techniques and trying new things. So, that's actually been a really exciting development for us as well. Overall, I think we've been very encouraged again by the numbers we're seeing an AOV because that represents not only continued engagement with these higher value products, but also continued retention and engagement of our customers long-term.
Maria Ripps: Great, that's helpful. And my other question is around gross margins. So, you sort of highlighted a few moving parts for cost of goods sold, can you maybe just talk about, which cost components there are more sustainable, like the increased use of premium ingredients, for example, and which could be, sort of more transitory, or maybe just more broadly talk about how we should think about, sort of various foods and takes impacting gross margins going forward? And Randy, can you maybe touch on, sort of some of the strategies to mitigate some of these high expenses here in the near-term?
Randy Greben: Absolutely Maria, I'll start and then hand it back over to Linda. What I'd say first and foremost is, we’re addressing the issue on multiple fronts. There are elements of our product offering, specifically around elevated ingredients, and premium products that will persist through the brand as we continue to make good on our product roadmap. We have fantastic relationships with our suppliers, 70% of whom are direct to Blue Apron. So, we believe that we're very well positioned to continue to work with our suppliers to make sure that the amount of value that they're providing to us is consistent with the value that we pass on to our customers. The area that's provided more challenges specifically than ingredients has been logistics. We work with a large logistics providers in the country. And we've seen this consistent with other direct-to-consumer companies as well. We're also feeling the pressure. We maintain an active dialogue with our suppliers. And this is one where we expect that through partnership, we'll be able to bring rates down to something that looks like more historical levels. Again, it's a multi-faceted approach, because we think that there are many ways in which we can positively impact our gross margin. It's something that we expect will normalize through the balance of the year and return to more traditional levels that we've seen historically. Linda, do you have anything that you'd like to add?
Linda Findley Kozlowski: Yeah, the only thing that I would add, and we've mentioned this before, but we’re very, very focused on making sure as we introduce new products, that we're maintaining strong margins with those products. So, we take some of the pricing into account when we're thinking about some of the premium ingredients and premium products. So, in addition to trying to drive some of those efficiencies within the supply chain, and also continue to attempt to drive efficiencies in logistics, we are making sure that we're continuing to look at the ingredients that we bring in, make sure that we're keeping the same quality that we had before, and pricing those new offerings according accordingly. We are continuing to always test some of those different options of how we can think about making sure that we're providing the right value to our customer, and also making sure that we're doing what's best for the business. And that's going quite well.
Maria Ripps: Got it. That's very helpful. Thank you both.
Randy Greben: Thank you, Maria.
Operator: At this time, we have no further questions from our listening audience. It is my pleasure to turn the floor back over to you Linda for any additional or closing remarks that you may have.
Linda Findley Kozlowski: Thank you very much and thank you everybody for your time today. On behalf of everyone at Blue Apron, we want to wish you, your families, your colleagues, and friends well. We look forward to providing an update when we report our third quarter results this fall.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
