Blue Apron Holdings, Inc. Class A

Good morning and welcome to the Blue Apron first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Tip Fleming, Head of Investor Relations at Blue Apron. Please go ahead.

Thank you, Operator. 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. This slide presentation that accompanies today's remarks can be accessed from 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 replied upon as representing its views as of any subsequent date. The company specifically disclaims any obligation to update these statements. 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 SEC filings where we have defined these measures. interview that reconciliation is non-GAAP financial measures, the most directly comparable GAAP measures. I will point out that many of the comparisons we are making today will be comparing the first quarter of 2022 with the fourth quarter of 2021 or the first quarter of 2020. The company believes that using the first quarter of 2020 as a benchmark is an appropriate way to evaluate the company's first quarter 2022 performance. The company believes that its financial results, patterns, and customer behaviors in 1Q20, the results of which, despite a sharp increase in demand in the last few weeks of 1Q20, were not materially impacted by the effects of the pandemic. As such, the quarter reflects a higher correlation to more normalized periods versus the pandemic-impacted periods of 2Q20 through 1Q21. And lastly, please note that in order to help investors gain a better understanding of our business, we will be providing a substantial amount of color on our current operating metrics and longer-term targets at our investor day tomorrow. With that, I'd like to turn the call over to our CEO, Linda. Linda, please continue.

Thank you, and good morning, everyone. We're happy to be with you today and look forward to providing a review of our Q1 performance and operational highlights. More importantly, I'm thrilled to have this opportunity to see many of you at our investor day tomorrow. A number of Blue Apron senior leaders will join me as we unveil our strategy for the next three years. We'll also provide an in-depth look at the business and our outlook for the future, including our strategic priorities and our path to adjusted EBITDA profitability in 2023. Until then, let me dive into our Q1 results and provide a look at where the business stands today. During the quarter, we continue to build on, execute and make progress against the foundational work we accelerated in the fourth quarter of last year. As we emphasized on our Q4 call, our focus in 2022 is on scaling the business and driving customer growth. This, of course, comes on top of the work we have done over the last few years that has helped to drive strong improvements in our customer engagement metrics. We are seeing the results of our efforts show up clearly in our strategic KPIs. Notably, customers grew 9.2% from the fourth quarter of last year to 367,000. Beyond seasonality, the sequential growth was also driven by greater brand awareness as a result of our new marketing initiatives. Strong customer engagement also helped drive top-line revenue growth of 10% from the prior quarter. Average order value continued to be seasonally strong at $63, even during a period of high acquisition. Orders per customer improved to 5.1 from 5 in Q4, and our average revenue per customer rose to $321 from $319 last quarter. This marks the eighth straight quarter that we have recorded orders per customer above 5 and average revenue per customer above 310. While Randy will provide greater detail, we also successfully completed a refinancing of our debt last week. We view this as a smart, strategic move during a time of rising interest rates. The refinancing with Allianz replaces Blue Apron's prior debt. This new debt comes with lower overall debt service obligations, including interest-only payments in the first three years and no warrant coverage, and also contains an ESG covenant that aligns with our strategy and brand. We also announced another round of equity private placements. I'm particularly pleased to have personally invested in this deal because I believe our company has such great potential both from a strategic and purpose-driven perspective. I'll let Randy comment on these transactions in more detail, but we see both balance sheet moves as further evidence of our long-term strategies taking root. In all, it has been a busy few months, and I'm excited by the team's execution. While we've been delivering on our progress, we did experience margin pressure as the first quarter unfolded, due in part to continued inflation. Before moving on, I do want to address rising food costs specifically. As we've said before, we are somewhat insulated from rising food costs due to the unique nature of our supply chain, as almost 80% of our supplier relationships are direct to the producer. However, we are not entirely immune. For this reason, earlier this month, we recently started rolling out a small per serving price increase for our meal kit and wine products. As the entire industry is seeing these pressures, this price increase now puts us in line with our main competitors while continuing to allow us to maintain a high bar of quality, value, and service for our customers. Moreover, even with this pricing increase, we believe that there is a real and growing argument to be made that meal kits can be a more economically viable option than grocery shopping. Taking into account our new pricing, we compared the price of one of our recent recipes with a selection of other retailers and found that trying to recreate that recipe at a grocery store would often cost much more if you chose a similar quality of ingredient. The cost increases even more if you decide to shop online and have the food delivered. The savings are even greater when we consider the per-serving price for our four-serving offering. We'll go into this further in detail at tomorrow's Investor Day. Overall, we're committed to proactively managing the impact of inflation and leveraging data to stay close to changes in consumer sentiment and purchasing power, all while maintaining the quality and value of our products. Randy will share more details about the impact on Q1 margins. We are also seeing improvements at our fulfillment centers. Since raising our minimum wage to $18 per hour in Q4 and implementing a number of other initiatives to improve our employee experience, we have seen retention and attendance improve significantly, and our reliance on temporary workers decline substantially. We look forward to seeing these improvements pass through to a greater efficiency moving forward. Our investments in both marketing and product innovation are making progress. While Q1 is always a seasonally strong quarter in our industry, In previous years, we have often started to see a seasonal drop in active customers by the end of the first quarter and into the start of the second. However, this year is definitely different. Today, our customer numbers are higher than they were at the end of Q1, and we continue to see growth in customer engagement. At this point, we expect to grow our customer base sequentially in the second quarter, bucking the typical seasonal trends of our business. We are also seeing customers return to our brand after trying other offerings. According to our data, we believe a little more than 5% of customers who reactivated their accounts in the fourth quarter of 2021 and first quarter of 2022 actually left Blue Apron to try another meal kit and then decided to come back to us. We believe this is a clear sign of the improvements we've made to meet customer needs over the past few years. We also feel that the improvements we are making to our marketing infrastructure will help us build on this momentum. As we anticipated, marketing spend was up 40% year-over-year in Q1. This spend was mainly due to our efforts to drive brand awareness on a larger scale. While there are fairly high initial upfront costs to attract new customers to our business, our internal data shows that our payback period over time is well under a year from a contribution margin perspective, and we have plans to continue to accelerate paybacks. More importantly, we have found that their spending with us increases the longer they are our customer. We'll take you through this in more detail at our investor day tomorrow. Based on the same data, We see that the new customers we acquired in Q1 are already tracking well with respect to order frequency and average order value versus the prior quarter and prior year. Similar to others in the industry, our cost per acquisition has increased over the past few months. However, we are already starting to see improvements, and we believe it will continue to come down in the coming quarters. This dynamic did impact our cash usage as expected during the quarter, and Randy will offer more insights on this in a moment. As you will hear more about during our investor day tomorrow, our marketing team is focused on rebuilding our marketing infrastructure with the aim of building a modern and robust foundation for long-term and sustainable growth. We are also committed to a holistic approach to our marketing that balances spending through the entire customer journey. During the quarter, we began implementing parts of our marketing strategy and selecting vendors that will help us execute our goals. For example, we're enhancing our existing customer data platform to more efficiently track every customer touchpoint to help improve conversion. We are also implementing a content management system to better manage our marketing content across multiple platforms for both organic traffic and conversion improvement. We plan to continue work on a number of initiatives related to this in the second quarter. We also brought all of our paid social media programs in-house and are implementing additional technology to allow us to simplify integration with a larger number of partners at scale. Our Chief Marketing Officer, Danny Simpson, will provide greater detail on our partnerships tomorrow at our Investor Day. We are particularly excited about a new national brand campaign that we launched in April. The campaign is aimed at building our brand and raising broader awareness for the meal kit category. The brand videos highlight the benefits of cooking with Blue Apron from creating incredible recipes with high quality ingredients to easing the burden of menu and recipe planning. This is an exciting moment for us as this is our first major national brand campaign since 2018. These advertisements kicked off our 2022 marketing strategy, where we are focused on creating a holistic and fully connected experience for our customers, from the first marketing touchpoint through sign-up and recipe selection. We're seeing positive initial results from our campaign, and Danny will dive into more details tomorrow. To complement our marketing efforts, we continue to meaningfully enhance our menu selection to offer more innovative recipes, as well as add even more choice and variety. Late in the first quarter, we launched a new breakfast offering. All of the recipes are designed to be ready in 15 minutes or less and feature classic breakfast ingredients with an elevated twist. This is just the start. Our culinary team plans to continue to iterate and expand on the options based on customer feedback. So far, the early feedback is extremely positive, and our breakfast options have been our most popular add-ons since we introduced them in April. Beyond breakfast, we plan to roll out new add-ons and increase the weekly selection from three to nine for families. Excuse me, three to nine for families. We expect our four serving plan to go to 12 recipes per week, available starting in June. We believe one of the keys to unlocking greater efficiencies when it comes to acquiring new customers and driving engagement with existing customers is through strategic partnerships and collaborations. We continue to build on the success of our existing work by partnering and collaborating with world-class companies such as Disney Studios Content, Amazon Alexa, WW, and American Express. For example, following a successful collaboration last year with Disney and Pixar on the release of Luca and Soul, we are again teaming up to celebrate their all-new movie, Lightyear, with a specially designed menu. We are also expanding to new channels through distribution partnerships while maintaining the efficiencies of the D2C model. We continue to work with Amazon Alexa, and today I'm very excited to announce that we will be launching a storefront on walmart.com later this month. Consumers will be able to buy Blue Apron boxes without a subscription. This direct-to-consumer offering is an excellent way for us to introduce Blue Apron to new groups of customers who may not have considered a meal kit before. We are excited for this initiative to get off the ground and look forward to adding similar partnerships in the coming months. In order to provide customers with a seamless delivery experience with the best service, we recently signed an agreement with Veho to support last-mile delivery in select markets. With the volatility of global supply chains, rising gas prices, and labor and truck shortages, We continue to regionally diversify and optimize our mix of last mile delivery partners to get the best service and value possible for our customers. Veho is servicing Blue Apron in select mid-Atlantic markets to start, and then we'll provide customers with real-time delivery messaging, as well as the ability to rate their driver and the overall service. We are looking to offer similar features nationwide in the future as we constantly search for and invest in ways to improve the customer experience. We are also taking advantage of increased production capabilities and network capacity to expand Monday delivery to regions outside of the Northeast and California. We are doing so by actively identifying additional ways to ship longer distances while mitigating increases in fuel and transportation costs. We have plans to rapidly increase our Monday footprint to include Florida, the Upper Midwest, and the Lower Great Lakes. By the end of Q3, we intend to offer seven days a week delivery to over 75% of the continental United States. Turning to ESG, we successfully met our commitment to become carbon neutral by March 31st, offsetting estimated Scope 1, 2, and 3 emissions. We achieved this goal by purchasing carbon offsets to cover upstream and downstream emissions that range from sourcing, packaging, and transporting our products. We are now working on implementing systematic reductions as we look to achieve our longer-term goal of being net zero. Becoming carbon neutral is an integral part of our better living roadmap. The plan is structured to sustain, preserve, and build on our existing sustainability commitments with a focus on people, products, and progress. We have included more detail in this roadmap than our proxy statement that we filed at the end of April, and our head of sustainability and social impact, Kelly Burton, will provide a deeper guide into our ESG strategy during tomorrow's Investor Day. We remain confident in the business and feel strongly that we are on the right path to creating long-term sustainable growth. We have more work ahead of us, and we hope you'll join us on this journey. And finally, we look forward to seeing many of you tomorrow in Linden or joining us virtually for the Investor Day. With that, let me turn things over to Randy for a review of the numbers. Randy?

Thank you, Linda, and good morning, everyone. As Linda highlighted, we are very excited about tomorrow's Investor Day. We have a lot we want to share on our strategy, the progress on the investments we have been making, as well as our overall path to profitability. The biggest development for us this quarter actually happened just last week. As Linda mentioned, we successfully refinanced our debt and announced an additional $40.5 million capital raise through two private placements. I'll talk about this in a moment. I'll also save commentary about some longer-term strategic topics for tomorrow's event, where we'll be able to spend more time diving into those at length. Turning to our results, as Linda pointed out in her opening remarks, This quarter, we continue to build on and execute against the foundational work we started in the fourth quarter of 2021. We are seeing some key signs that our investments are working and are also gaining a better sense of where we may need to pivot. This, along with the continued strength of our most important customer metrics, give us confidence that we are on the right track. On today's call, I'd like to walk through the quarter's results and then contextualize them within our broader strategy to demonstrate how we are continuing to invest in our future by methodically prioritizing expenditures through smart, data-driven decisions. In my discussion, I will be comparing our results to the previous quarter and to Q1 2020. The first quarter of last year was what we view as having been the final quarter of truly pandemic-driven customer behavior. Meanwhile, in the first quarter of 2020, was largely a normal quarter as the lockdowns imposed in the last couple weeks of the quarter didn't materially impact the business until Q2 of that year. Net revenue, which includes our meal, wine, and market businesses, increased 10% from last quarter and almost 16% from Q1 2020 to $118 million. Average order value this quarter was $63, a KPI that we're particularly proud of in light of the fact that we maintained AOV even in an environment where we provided the highest level of promotional incentives towards acquisition in our recent history. Average revenue per customer increased quarter over quarter to $321 from $319 and was even bigger bump of 19% over Q1 2020. Orders per customer ticked up slightly to 5.1 versus the previous quarter and increased 8.5% versus the first quarter of 2020. Total customers increased 9% sequentially to 367,000, but decreased 2.4% versus Q1 2020 levels. As Linda mentioned, we grew customers by 9.2% from the fourth quarter of 2021. While we did grow customers at a similar rate to the prior year period, there are a few key differences to note. First, in the early months of 2021, we were still being impacted by the pandemic as vaccines were not widely available until later in the year. As the quarter came to a close, we started to see customers decline from the Q1 high beginning in the month of April. Fast forward to today and through the first five weeks of the second quarter, we have more customers now than we did when we ended Q1 and expect to continue to grow over the first quarter. It's an encouraging start and a solid proof point of the growing strength of our strategic initiatives. Turning to the rest of the P&L, in Q1, our variable margin was 32.5%, which was impacted by staffing dynamics and ongoing inflationary pressure. Let me take a moment to offer a bit of context, as there were a number of different variables month to month. Some of these issues were temporary, while others, such as food costs and logistics inflation, are likely to persist. In late 2021, we significantly increased our fulfillment center staffing levels to prepare for the impending rush of seasonally high Q1 demand. We then had to augment our staffing levels due to higher absenteeism driven by the Omicron variant. It resulted in much higher than expected labor costs as we had to bring in more expensive temporary employees. This had an adverse impact on our variable margin at the beginning of the quarter. As the Omicron wave subsided in February, our reliance on temporary workers began to wane. At the same time, typical levels of absenteeism dropped precipitously. We attribute this favorable attendance rate following the Omicron wave directly to the enhanced wage rates and other benefits we began to provide in the fourth quarter. As we moved into March, the staffing challenges we experienced in January and February abated, and we exited the quarter with a more normalized margin rate in the month of March. We continue to drive efficiencies to return to target margin levels going forward. Linda referenced our unique sourcing model and the insulation it provides us against a portion of inflationary pressures. While it's clear that we are somewhat insulated, we are not immune. And it is for that reason that we began increasing prices on our meal plans and wine subscriptions this quarter on a per meal serving and per wine bottle basis. This is expected to put the business back on track with a short-term variable margin percentage targeted in the upper 30s. Shifting gears, marketing spend increased 40% year-over-year to $27.9 million. Similar to last quarter, the increase was primarily related to planned targeted marketing investments aimed at improving overall brand awareness and reach. These investments are paying off. Our ability to convert a visitor to a registrant on the Blue Apron site in Q1 improved to almost 4%, and the number of actual paying customers also increased. These are the trends that we like and that we hope to see continue as we roll out more marketing initiatives in the coming months. That being said, I have to acknowledge something Linda mentioned earlier. The rising cost of media and marketing dollars, which we expected to a degree, have proven to be greater than we modeled. Our cost per acquisition reached near record high levels in Q1, and while we expect efficiencies that will reduce CPAs going forward, the elevated cost of marketing did result in the business using more cash in Q1 than originally anticipated. We remain committed to customer and revenue growth and are also excited to share more details about this and our path to profitability tomorrow. As we shared previously, a key component of our strategy is the retooling of our marketing infrastructure. We accelerated this process beginning in Q4, and we plan for costs to normalize as we move toward the second half of the year, as the programs we've put in place and those we are working to put in place are expected to begin to bear fruit. Because of that, marketing spending Q1 will likely represent the high watermark of our quarterly spend this year. Of course, marketing optimization, like so many parts of our business, is never really done, and continuous improvement is a key tenet of our operating philosophy. Product, technology, general, and administrative costs were $43.3 million for the first quarter, which was in line with the previous quarter as a percent of sales, and higher than Q1 2020's $34.2 million. Included in PTG&A are professional fees incurred to help us manage our business and operations. PTG&A and Q1 also included a $3 million expense related to the purchase of carbon offsets. That expenditure, while offsetting Blue Apron for a full year of CO2 emissions, was recognized in full in March. Further, we completed a critical short-term operations improvement consulting engagement in the quarter. Leveraging this part of our P&L is also a key component of our path to profitability and will be another area of emphasis during tomorrow's presentations. Other income net was $1.6 million, which was driven by a non-cash fair value adjustment to the May 2021 amendment to our financing agreement. Since the amendment, we have been obligated to issue warrants to our lender on a quarterly basis, which began on July 1, 2021. This obligation terminated last week when we repaid and terminated that loan facility. Turning to profitability, we reported a net loss of $38.4 million, which includes the aforementioned $1.6 million of other income. Adjusted EBITDA loss was $30.7 million. We ended the quarter with cash and cash equivalents of $56 million. We used $29 million in cash from operations. Subsequent to the end of the quarter, we announced a $40.5 million equity raise, of which $20.5 million has closed, and the successful refinancing of our debt, which includes $30 million of new senior secured notes that mature in May 2027. we utilize the proceeds from the senior secured notes and cash on hand to repay our prior term loan. We expect to close the remaining $20 million private placement by the end of this month, and immediately following that closing, we expect to have approximately $80 million of cash on hand. Further, as of May 5th, all of Blue Apron's debt is classified as long-term. The successful refinancing of our term loan should be seen as another encouraging sign of the progress against our turnaround. Our new debt comes with a significantly lower cost of capital. We've reduced our coupon rate by more than 160 basis points per annum, assuming we meet the specified bond ratings for the debt and are in an interest only environment for the next three years. In addition, we no longer have to provide our lender with a warrant coverage that was present with a prior term loan. It also includes an ESG covenant that aligns nicely with our packaging sustainability goals. Before I turn things over for Q&A, let me touch briefly on our outlook. Our guidance and targets assume the anticipated consistent benefit to our business from the acceleration and execution of our strategic growth initiatives. It also reflects the impact of the plan use of proceeds from the equity capital raises we completed last November, February, and April, and the expected proceeds from the additional $20 million equity commitment, as well as the positive cash impact of certain marketing contracts. These assumptions include our expectations that we will continue to make significant investments in our marketing technology infrastructure as well as continued operational improvements. Lastly, our guidance assumes we will not have any unforeseen disruptions in our fulfillment center operations or supply chain. We have used a significant amount of capital over the last six months. We view the investments we've made in marketing, marketing technology infrastructure, operations, wages, and sustainability as crucial components of our go-forward business strategy. We believe we are now entering a phase where our cash burn should subside materially. We expect positive operating cash flow this quarter, and while we will use cash in the second half of the year, we expect that this past quarter will represent our largest quarterly usage for the foreseeable future. We now look to leverage the investments we've been making, and we continue to expect to return to positive year-over-year revenue growth starting in the second quarter of 2022. We also continue to expect full-year 2022 revenue growth in the mid-teens, and we are targeting to achieve full-year adjusted EBITDA profitability next year. Again, I should emphasize we do not think it is correct or appropriate to take our cash burn from the fourth quarter of last year and first quarter of this year and assume that it will continue on a straight line basis. It should not. We look forward to sharing many more details tomorrow, and we hope to see many of you in Linden. And with that, I will turn things back over to the operator to open things up for Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Maria Rips from Canaccord. Please go ahead.

Good morning, and thanks so much for taking my questions. First, can you maybe talk about some of the trends through Q1 sort of and whether you saw any changes in customer behavior sort of mid-quarter given all the macro headwinds and uncertainties? And you mentioned that customer trends are sort of strong so far in Q2 versus March. Is there anything sort of around engagement or level of customer growth so far this quarter that you can share with us?

Sure. I'll start, Maria. Thanks so much for the question. So we're actually seeing really strong customer trends in Q1. So what we saw as evidence in our key engagement metrics is that we are seeing the same or elevated levels of engagement based on seasonality from customers when it comes to how many meals they're purchasing, how they're actually engaging with the service, et cetera. We actually see that those cohorts are behaving and trending quite well from Q1, which is very positive considering we were actually increasing our acquisition. So that's a very good sign from an engagement perspective. What we were noting in transitioning into Q2 is, again, usually seasonally you see a drop-off in customer acquisition as you come into the seasonally lower Season 2. But we actually have not seen that this year as we've seen acquisition continue to remain strong. We are also seeing traffic coming from our paid channels actually performing quite well. at a very high level. And so that's encouraging when it comes to thinking about those top of funnel initiatives that we introduced late last year and beginning of this year to drive significant traffic at the top of the funnel so we can continue to work on conversion further down into the funnel.

Got it. That's very helpful. And I also wanted to ask about sort of gross margin compression this quarter. Is there any way to separate that, I think, 460 basis point impact into maybe temporary, which is what could be a little bit more permanent? And I understand there are so many moving parts right now. And, Randy, I think you mentioned you were targeting sort of higher 30s for gross margins. Any cover around sort of the timeframe for that target?

Absolutely. The quarter was really a tale of three very different distinct months. January was significantly impacted by the Omicron variant. We had a lot of absenteeism in our FCs, and we had to then bring in temporary employees who were more expensive, and obviously we of course provided benefits to our employees as they were out. That changed in February, and in February we experienced a very different phenomenon to what we'd experienced in the past, where our absenteeism levels dropped very significantly. There's typically a level of absenteeism that we expect in our hourly workforce And that pattern changed materially. We attribute it very, very directly to the wage rates that we put in. The impact of food costs and logistics inflation was present throughout the entire quarter. To give you a better sense of where I think we are, The variable margin in the month of March on a pro forma basis looked like about 36%, adjusting for some one-offs. That is lower than we normally target. We expect our business to be in the high 30s, and we think that the delta from sort of that high 30s to 36 is likely the impact of what we're seeing from a food inflation perspective and a logistics perspective. We do expect to be back into the mid-30s or greater later this month. We, of course, are entering the period of our business, Maria, where we see seasonal pressures from a margin perspective due to weather. But we believe that with the benefit of the pricing actions that we are currently rolling out and the continued efficiency gains, we should be back on track to a margin in the 36% or above range really starting this quarter.

Got it. That's very helpful, Randy. And maybe one more question, if I could. Can you maybe share a little bit more, Carl, around your advertising spend? You mentioned improving brand awareness. Can you maybe just talk about what portion of the incremental spend is going towards brand versus direct response? And what are some channels that are sort of most productive for you? And I guess what's sort of the level of organic traffic on the platform at this point?

Sure. I can give you some color on that, some more of which we'll actually be discussing in the investor day tomorrow. But basically we started from a top of funnel perspective with a lot of out of home and particularly streaming digital programs. And that's where a lot of the overall brand programs started. And then we moved more directly into TV, which launched at the beginning of Q2. And those have been some of the primary top of funnel drivers for us. I don't have the actual breakdown on percentages. We'll talk a little bit more about that tomorrow. But what I can tell you is we've actually balanced the portfolio quite nicely to drive that traffic spike that we've been seeing in Q1, end of Q4, beginning of Q1, that we're able to continue to move through the funnel and convert. So that's worked quite well, and we have seen – a shift in a higher percentage of paid traffic coming in from organic, which is something that we actually expected based on the COVID quarter year-over-year comparisons to Q1 of last year, which was a high organic traffic quarter because of COVID comparison. But again, we'll get a little bit more detail on that tomorrow. It's performing quite well in being able to drive that traffic. I think some of our more successful mid and lower funnel channels include things like our search conversion is still working well, and we are moving very aggressively on social as we brought that in-house this quarter. So we're able to optimize very quickly on social as well.

Got it. Thank you both. Looking forward to your analyst day tomorrow.

Thank you, Maria. Thanks so much.

And as a reminder, if you have a question, please press star, then 1. Again, if you have a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Tip Fleming for any closing remarks. I'm sorry. Yep.

Looks like we have one more question.

Yep. We have a question from Andrew Les from Citron. Please go ahead, sir.

Hi. Regarding the Walmart partnership or offering the one-offs, is this exclusive to Walmart? Will you be able in the future to offer the same things possibly to other e-commerce platforms?

Thanks so much for the question, Andrew. Actually, it is something that we're planning on scaling out. And again, we will talk about this a little bit more on Analyst Day tomorrow. We've in the past talked a lot about a couple of different partnership strategies, which is acquisition partnership strategies, very focused on Sort of things like affiliates and things will bring direct traffic into the business. We've also talked about strategic partnerships where we've done product integrations and more, and those have been very successful for us. This is actually an expansion of a new product type partnership type for us, which is a distribution partnership structure. So distribution and licensing is something we'll be talking about more tomorrow. We started that actually with the Amazon Show integration that we did in December. And Walmart is not an exclusive arrangement. It is one we're extremely excited about because it does represent a significant opportunity for broader distribution channels in the future. But importantly, one is unlike some of the past distributions that we've done around retail distributions. This one has significantly better direct consumer margins and profiles to it. So it is the first of something that we think can be very exciting and something that doesn't limit us in the future and, in fact, actually provides a great platform to leap from.

All right. Thank you. Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Tip Fleming for any closing remarks.

Thank you very much, everyone, for your time today. We are excited about what's in store for Blue Apron, and we're very much looking forward to talking to you again tomorrow at our inaugural Investor Day from our Linden Fulfillment Center. We'll see you then. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.