Blue Apron Holdings, Inc. Class A

Good morning and welcome to the Blue Apron Holdings fourth quarter and full year 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, Thursday, February 10, 2022, for replay purposes. Should you need assistance on this call, please signal a conference specialist by pressing the star key followed by zero. Now I would like to turn the call to Tip Fleming, Head of Investor Relations for Blue Apron. Tip, please proceed.

Thank you, operator, and thank you, everyone, for joining us today. With me on the call is Linda Finley, President and Chief Executive Officer of Blue Apron, and Randy Grevin, Chief Financial Officer. Before I turn the call over to Linda, a few remarks about this call. A slide presentation that accompanies today's remarks can be accessed on our Investor Relations website. In addition, various statements that we make during today's call about our future expectations, plans, and prospects constitute forward-looking statements as defined in the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these 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. Furthermore, during this call, we will be referring to certain non-GAAP measures which are not prepared in accordance with generally accepted accounting principles. We encourage you to refer to the earnings release and the SEC filings where we have defined these measures and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. And lastly, I will point out that many of the comparisons we are making today will be comparing the fourth quarter of 2021 with the fourth quarter of 2019. We believe that using the pre-pandemic fourth quarter of 2019 as a benchmark is an appropriate way to evaluate the long-term evolution of our key customer metrics. We believe that the patterns and customer behaviors in the fourth quarter of 2021 reflect a higher correlation to the more normalized periods, which were last seen in 2019 versus the pre-pandemic, sorry, versus the pandemic impacted periods of 2020. With that, I'd like to turn the call over to our CEO, Linda Finley. Linda?

Thank you, Chip, and good morning, everybody. I'd like to start the call by saying how truly exciting this past quarter was. The $78 million equity capital raise that we completed in November sets us up to accelerate our growth strategy and aggressively execute against the next step in our company's evolution. We believe that 2022 will be a transformational year for Blue Apron, and we are excited to talk about the start of that journey today. Before I share more details about what's next and some other developments from this past quarter, I'd like to take a step back and talk about our path over the past few years. When I joined Blue Apron in 2019, it wasn't a secret that we had a lot of work ahead of us to address the many challenges the company was facing. I believed then and believe now in the power of our brand and our products and the potential ahead for Blue Apron. After almost three years, I continue to see the amazing impact cooking with us has on our customers' lives every day. A few months after I joined Blue Apron, we announced a strategic roadmap that was focused on delivering long-term sustainable growth. We outlined a three-prong strategy centered on, first, engaging more high-value customers, second, offering greater menu variety, flexibility, and choice in our products and services, and third, efficiently scaling our infrastructure. I'm proud to say that Blue Apron today is a much improved company, and we see a lot of great opportunities ahead. Over the last two years, we put significant time and resources into executing on the first two prongs of our growth strategy, resulting in our highest levels of average order value since we started tracking this metric. In addition, orders per customer and average revenue per customer have been performing well above their pre-pandemic levels in 2019. At the same time, we were able to start the foundational work on the third prong of our strategy, setting us up for customer growth in 2022 and beyond. In terms of our customers and product, we focused on adding more variety, flexibility, and choice to our menu. We expanded our options with customization, additional premium options, and add-ons, as well as Heat & Eat, our newest ready-to-eat product category. The introduction of these offerings was strategically rolled out to continue to meet the evolving tastes and preferences of our customers. To give you a sense of how far we've come, back in 2019, we offered just 17 weekly menu options, and now we have over 50, without counting the additional non-subscription boxes on the Blue Apron market. Moreover, many of our menu options in 2019 were complicated and took too long to prepare. Now the majority of our two serving and four serving recipes are designed to be ready in 35 minutes or less. We also introduced options that have quicker prep and easier cleanup alongside our popular wellness recipes. As we continue to look for ways to grow customer engagement and retention rates, we have introduced several fully integrated partnerships over the past few years. This includes our work with Disney Studios Content, Aspiration, Calm, Panasonic, Amazon Alexa, and WW. We also collaborated with several well-known chef partners with influential culinary voices such as Roy Yamaguchi and Chef Sam Kass. At the onset of the pandemic, we identified areas to improve efficiency and capacity in our fulfillment centers. As many of you are aware, investments in Blue Apron's operational footprint consumed a significant amount of both management time and capital in the company's early years. While we believe our packing and fulfillment capabilities are state of the art, we were not leveraging the full potential of these investments. We have since worked to bring a greater level of sophistication, productivity, and discipline into our operations, which has allowed us to identify and address bottlenecks. We have also introduced programs to more effectively staff, train, manage, and compensate our team members, all while keeping them safe. While we are still seeing impacts from the pandemic, including periodic staffing challenges, we now view our fulfillment centers as a source of strength and believe they will give us a true competitive advantage. We expect to require limited capex spend on our fulfillment centers moving forward and believe we can continue to unlock more efficiencies. In general, we designed our operations to be a major cornerstone of our success as we step into our next phase of growth. I'm proud to say that we successfully implemented the first two prongs of our growth strategy despite constrained liquidity and the pressures from the pandemic-challenged macroeconomic environment. While we continue to build on our success, we are diving deeper into the third and final phase, rebuilding our marketing infrastructure and focusing on customer growth. The completion of the equity capital raised during the fourth quarter allows us to expedite the remaining work we have on our roadmap. We remain disciplined about implementing our strategy for sustainable long-term growth during the pandemic. Our goal has always been to build a sustainable business that comes out of the pandemic stronger than when it went in. From an industry perspective, we believe that despite new variants, we have already entered a post-pandemic era. This is backed on consumer behavior evolving beyond the drastic changes of 2020 as a result of lockdowns, restaurant closures, and long grocery store lines. Most of these pandemic impacts were gone or easing for much of 2021. Today, we believe that we set the highest bar in the meal kit industry when it comes to quality. For us, that means we strive to provide the best food quality and culinary experience, while we continue to work towards having the highest standards in the industry for environmental sustainability and animal welfare. We think that many consumers today are looking for an offering that features choice and convenience with quality ingredients, and that is what we deliver. We hold our suppliers to strict standards and we constantly search for the highest quality ingredients. We already see the benefit of many of the initiatives we undertook in the first two phases of our growth plan when we look at customer behavior and our strong customer metrics over the past two years. We are also focused on building on our ESG initiatives and continue to make sustainability a core part of our corporate values. We see this differentiated approach as our sweet spot. With the completion of the $78 million capital raise in November, We believe now that we have the financial foundation to be more aggressive with our marketing in the third phase of our strategic plan. While profitability remains a goal over the long term, we are focused on taking advantage of an important opportunity to accelerate customer and top line growth. We believe that we are at a true inflection point in our journey as we continue to turn around our business. This past quarter, we significantly ramped up our marketing spend, focusing on targeted investments that are helping to raise brand awareness. We specifically started working with mainstream and digital media companies that align with our brands, such as BuzzFeed and Food52, and are creating cross-channel content across their ecosystems. As we continue to be more aggressive with promoting our brand to attract new customers, we are also ramping up our investments in marketing technology, especially as we look ahead towards a cookie-less future. Highlights include building out a customer data platform to better manage our first-party data, onboarding a content management system to more effectively leverage our digital content and enhance our ability to use technology to increase customer adoption, and investing in our engineering capabilities to improve overall user experience. As a result, marketing spend grew 68% year over year in the fourth quarter, which Randy will discuss in further detail. Given that the proceeds from the capital raised arrived late in 2021, we made the strategic decision to make investments that we thought would fuel growth in 2022. I will share that we are encouraged by customer trends at the start of this year. The number of new registrants and existing customers reactivating their Blue Apron accounts were up more than 10% during the first five weeks of the year versus the same period last year. New registrants and account reactivations are the first step in becoming a paying customer. We believe that we will see the benefit of these increases throughout 2022 and beyond and expect the business to return to positive year-over-year quarterly revenue growth starting in the second quarter and the full year overall. As new customers begin to experience Blue Apron, we continue to work on delivering new product innovations and making meaningful enhancements to our menu. Customers now have even greater options to swap, add, or upgrade ingredients in each box, as 50% of our two-serving and four-serving meals are customizable with plans to expand more recipes by the end of this year. A customer can further personalize a box by adding a side, dessert, or appetizer. We're also now introducing more seasonal and special occasion offerings, such as Thanksgiving and New Year's, which can be purchased with or without a Blue Apron subscription. Offering the option to purchase through a variety of channels is another example of how we're providing consumers with the flexibility to order what works best for them. It also reflects our plans for the future. While we believe that our subscription business will always be at the core of what we do, we see opportunities to explore new buying behaviors, including purchasing our products without a subscription and expanding our partnership ecosystem. Heatneat is another great example of a successful new product launch. It provides customers with a quick meal option that doesn't sacrifice quality. Since we introduced it at the end of the third quarter, we have seen a steady uptick in volume and unique customer trials, especially as we rotate our new recipe selections. The demand has continued into the new year. Based on our analysis, customers who are adding Heatneat to their box appear to be doing so on top of their standard recipes, which in turn helps drive AOV. We plan to continue to expand recipe options as we learn more about consumer tastes and preferences. All of these product innovations and added variety help to drive an almost 9% increase in orders per customer and an almost 10% increase in AOV compared with pre-pandemic fourth quarter of 2019. This marks the seventh straight quarter where we have delivered strong customer engagement metrics. This performance gives us the confidence that the first two phases of our strategic growth plan have been working and that now is the right time to move into the third phase and aggressively ramp up our customer acquisition initiatives. Now, I'd also like to take a moment to touch on how we are expanding our ESG projects across the organization. On the environmental side, we remain on pace to meet our goal of being carbon neutral by the end of Q1 2022. We initially planned to do this through the purchase of carbon offsets based on our initial estimated carbon footprint with plans to implement systematic reductions in the years ahead towards our longer term goal of net zero. On the social front, paying fair wages and investing in our team members is one of our highest priorities. In the fourth quarter, we introduced a starting hourly wage of $18 per hour alongside additional training and other employee benefits. On the governance side, we eliminated our dual class share structure in the third quarter. We are also continuing to work towards our board diversity goals, including being at least 50% racially diverse following our 2022 annual stockholders meeting. Before I pass the call over to Randy, I'd like to leave you with a quick story. Last month, we received an email from a mother who signed up for Blue Apron a few years ago to give her son the opportunity to experiment in the kitchen. Over the years, and in part with the help of Blue Apron, Her son found a passion for cooking, enrolled in culinary school, and is now a junior sous chef at an upscale restaurant. In her notes, she thanked us for giving him the tools to find his passion. Stories like this are, in part, why I, along with my colleagues across our business, are so proud to work at Blue Apron. Whether it is a child hoping to cook for the family, a busy working professional looking for a healthier alternative to take out, or a retiree trying to get out of a food rut, we believe the market potential is huge, and our vision, for better living through better food is as important now as it ever was. In summary, we couldn't be more excited about what lies ahead in 2022. Having made great progress on the first two prongs of our growth strategy, we feel strongly that we're on the right path. We believe the actions and investments that we are taking in this final stage are putting us in a great position to get back on a path for long-term and sustainable growth. I'll now pass the call over to Randy.