Blue Apron Holdings, Inc. Class A

Good morning and welcome to the Blue Apron Holdings second quarter 2022 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, Monday, August 8, 2022, for replay purposes. Should you need assistance on this call, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. If you are at your computer, please use the submit a question box in your webcast viewer. Now, I would like to turn the call to Tip Fleming, head of investor relations at Blue Apron. Tip, please proceed.

Thank you, operator, and thank you, everyone, for joining us today. With me on the call are Linda Finley, President and Chief Executive Officer, and Randy Grevin, Chief Financial Officer. Before I turn the call over to Linda, a few remarks. A slide presentation that accompanies today's remarks can be accessed on our investor relations website. As the operator just mentioned, in addition to taking our normal questions over the phone, we will also be taking questions via the webcast. If you are at your computer, please use the submit a question box in your webcast viewer. I'll be moderating, so I'll try to collect all the questions and ask them to our management team as they come in. Moving on to our Safe Harbor. 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 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 our earnings release and 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 results. With that, I'd like to turn the call over to our CEO, Linda Finley. Linda?

Thank you, Tip, and good morning, everyone. We're pleased to have you here today for an update on our second quarter performance and the strategic priorities we laid out during our investor day in May. To start, I will broadly address our Q2 results and strategic execution. Randy will then provide a deeper dive into our financials and report on several recent developments. During the second quarter, we continued to execute against our next course strategy. As outlined at our May Investor Day, our focus over the next three years is on driving long-term sustainable growth, achieving adjusted EBITDA profitability in 2023, and positive operating cash flow in 2024. Although we're only in the early stages, our hard work helped drive a slight increase in revenue versus the prior year in a seasonally slower second quarter and a 6% jump sequentially to $124 million, including a $10 million bulk enterprise sale. Throughout the quarter, our customer engagement metrics continued to perform well. We achieved more than $67 in average order value, which is the highest level in the company's history, and average revenue per customer improved from last quarter to $328. While recent price increases contributed to some of the improvement, our ongoing commitment to introducing new menu options, along with additional variety and customization, continues to be a key driver of these metrics. For those of you who are listening and are customers, you may have noticed that we recently increased our menu to 62 options. This is more than three times the number of options we had in 2019. Finally, orders per customer were roughly in line with last quarter, illustrating the strong engagement of our customer base with our product offerings. This quarter, our total customers were 349,000, a slight decline from the first quarter of 2022. Similar to many other companies, we saw seasonal and macroeconomic pressures on purchasing patterns due to concerns over the inflationary environment. I would note that we have some subscribers who chose not to order during the quarter for budgetary and travel reasons, and therefore are not included in our customer count for the second quarter. The customer number also does not include enterprise or bulk sale customers, which is an exciting new part of our business. When we look at overall yearly trends, we get a more comprehensive sense of the scale of our business. For example, the total number of active customers over the 12 months ending June 30th, 2022 was approximately 682,000. This was down slightly from the equivalent peak pandemic period a year ago, though it represents a more complete view of the active customers in our business as it smooths out seasonality. We plan to continue reporting this rolling 12-month customer count in order to be more consistent with other e-commerce companies. In addition, we saw some encouraging traction from the new brand campaign launched at the beginning of the second quarter. In particular, the heightened awareness drove a tangible increase in traffic to our site, with total weekly unique site visits in the second quarter increasing 14% from the first quarter and over 33% from the same quarter a year ago. We're encouraged by the results of the more holistic approach to customer acquisition that we're taking, and we're now shifting our focus to improve conversion once consumers arrive at our site. I'll talk more about our various marketing initiatives in a few minutes. More broadly, our team remains disciplined in managing the business as we navigate current market dynamics. In the month of June alone, the consumer price index rose 9.1% year over year, while prices for groceries and food away from home jumped 12.2% and 7.7% respectively. During the second quarter, we introduced a small increase in our per serving pricing, bringing us in line with what our competitors charge, but still less than the increases generally seen in the market. For our most popular configuration, two servings, three times per week, we charge $9.99 per serving. This drops down to $7.99 for four servings, four times per week. We selected a salmon dish from our menu and compared the price of $9.99 per serving to what the ingredients would cost at a grocery store in two key markets. Our pricing continues to represent a better value. In this inflationary environment, based on an internal study, we continue to believe that our pricing compares favorably. And with Blue Apron, you minimize spoilage and don't end up with extra ingredients. Our meal kits can also be more cost-effective than a similar meal at a restaurant. I should add that the price of a meal at a restaurant you see here does not include taxes, tips, or delivery fees. We are able to drive value for a number of reasons. First, we have insight into demand because of our direct-to-consumer platform. Combined with our machine learning algorithms that help us forecast ingredient needs, this allows us to minimize food waste that is inherent in the broader food system. Second, because we source approximately 80% of our raw materials directly from the producer, we can keep our quality standards high while mitigating some pricing pressure. We also see a real additional value when you factor in the overall experience. We help customers ease the stresses and decision anxiety around grocery shopping and menu planning, and we give them an amazing cook-at-home experience with a broad variety of chef-designed recipes. We continue to focus on translating our purchasing power into creating value and a joyful experience at home for our customers as they navigate a very challenging economy. As referenced earlier this morning, we unveiled the next phase of our turnaround strategy, appropriately called the next course, at our May Investor Day. Our goal for Blue Apron is to be the first choice for consumers who seek curated food experiences that meet the needs of their households and enhance their lives. As a business, we plan to expand beyond traditional meal kits and subscriptions, including building an ecosystem of partners that creates better living through better food. The next core strategy is focused on achieving long-term sustainable growth and reaching profitability at the adjusted EBITDA level in 2023. Given the current economic environment, we believe our focus on reaching profitability is even more important. The strategy is centered around three key objectives. One, building curated customer experiences to support growth and expand market share and target segments. Two, creating a scalable platform by optimizing our technology and operational infrastructure to deliver a seamless and scalable e-commerce experience. And three, driving sustainable profit by executing against our ESG initiatives. We believe that these three points aren't mutually exclusive and we are working on each one at the same time over the next three years. In fact, we've already started implementing these initiatives across the organization. Let me start with building curated customer experiences. As a business, we are committed to driving market share growth and growth within our key four customer segments through targeted marketing, new partnerships, and product launches. In the current economic environment, consumers are becoming more cost-conscious. As I mentioned earlier, we are pleased to see that our new brand campaign was successful in driving solid traffic to our site and app. The initial program ran for the first six weeks of the quarter, and we plan to launch the second tranche of the campaign in September for the back-to-school season. While we're driving new traffic to the site, we are also working to improve conversion rates by testing, learning, and iterating on the customer journey. For example, over the last few weeks, we launched a newly configured blueapron.com homepage and also updated and streamlined our pricing and plans page. These changes are designed not only to make it easier for customers to navigate through the site, but also to provide the opportunity to share their preferences, which allows us to personalize their experience even further. This is all part of our strategy to invest in our technology and organization to provide a seamless customer experience. As we continue to roll out our brand campaign and improve our sign-up experience, we believe that we should be able to drive elevated awareness and conversion moving forward. Another key focus area is partnerships. On the distribution partnership side, in June, we launched a non-subscription offering on Walmart.com. We continue to ramp up as we're still in the process of establishing consistent SKUs, ratings, and reviews. We are excited that this partnership has allowed us to extend our e-commerce presence to a wider pool of potential customers outside of the Blue Apron ecosystem. In addition, we've been able to transform our fulfillment capabilities so that we can pack and ship a box for our channel partners within one business day. These are capabilities that we're extending to other potential partners. As we shared in May, we are focused on securing more enterprise sales, which for us refers to corporate portals, bulk gift card sales, sweepstakes programs, and the curation of custom boxes and experiences. We believe these efforts helped expand brand awareness and drive revenue and customer growth. This quarter, we worked with Feeding America, Snappy, and Blue Cross Blue Shield companies participating in the Blue 365 program, among others. Brand and media integration partnerships are another important area that we have been focusing on. This past quarter, we extended our Wellness 360 program to include Planet Fitness. We also renewed our collaboration with Calm, a leading app for sleep, meditation, and relaxation. These collaborations help make our media dollars work harder for us with larger reach, custom integrations, and retargeting tools that amplify priority messaging for both companies. We are continuing to push forward with this work since these partnerships have helped us attract new customers, often with lower customer acquisition costs. We also continue to expand our gift card program to help attract new customers to our products. We are excited to share that we are now the first and only meal kit company to date that is part of the not registry store. This collaboration comes in time for what is expected to be the biggest wedding season in recent history, and as couples look to include more personalized gift experiences as part of their wedding registry. We launched a number of exciting new products over the last several months, especially offerings designed for families, a category we see as the biggest opportunity for us. We recently expanded our weekly four-serving menu to 12 recipes, which includes a variety of vegetarian, wellness, craft, and premium options. In our testing on this product expansion during the quarter, we saw increases in net revenue per customer, order rate, and average order value for existing subscribers and reduced churn. We also saw a solid improvement in subscriber conversion. We also recently introduced Ready to Cook, the newest addition to our lineup of quick prep meal offerings. These can help our customers create delicious meals in less time without compromising on ingredient quality and flavor. Each recipe comes with pre-portioned, pre-chopped ingredients and a recyclable aluminum tray allowing people to simply combine, bake, and serve. Our other quick meal options include our microwavable heat and eat meals and fast and easy, a series of recipes that are designed to be ready in under 30 minutes. Lastly, we expanded our add-on options from six to nine. The options now include a weekly breakfast, a variety of salads, appetizers, and desserts, as well as a selection of a la carte proteins. This past quarter, we also introduced a new limited time seasonal meal kit created in response to customer demand for offerings that can help celebrate special moments. These meal kits provide our customers with everything they need to make entertaining easier, with minimal effort. We kicked off the new category with our first-ever Summer Lobster Box, which has been a hit with customers. The next iteration of the offering will be a tailgating box that includes simple and elevated versions of game day classics. Turning to the second objective of our strategy, we are focused on optimizing our technology and operational infrastructure to deliver an agile, scalable, and seamless e-commerce experience with subscription at its core. This work is expected to allow us to cross-sell our own products more effectively and to more easily integrate third-party products and partners into our broader ecosystem. In addition, we plan to enhance our speed to market, drive stronger customer engagement, and unlock revenue enhancing opportunities. As an example, we recently moved to a more customer-friendly structure, removing limitations so they can order as many recipes or add-ons as they want. A key part of our platform advantage is how we plan to scale our operations with minimal capital investment, underpinned by our physical asset base. We are making almost every aspect of our operations more flexible from receiving to kitting to our customer-facing logistics. As we continue to expand our product set, our key priorities are to maintain productivity and drive long-term margin improvements. The third and final objective of the next core strategy is centered around driving sustainable profit by executing on our ESG initiatives. First, we purchased 248,000 metric tons of carbon offsets from a related party vendor to meet our 2023 and 2024 carbon neutral goals based on our 2021 estimated carbon footprint. We are paying for these carbon offsets over the next 24 months. We're happy to report that we were able to lock in the rate we paid for our 2022 offsets in what has become an inflationary environment for carbon offsets. We view these offsets as an important interim tool as we continue to implement more practices on our path to net zero. Second, we continued to work on including ingredients in our pantry that meet our strict quality standards and animal welfare guidelines. In recognition of this work, we were pleased to be named a progress leader in Mercy for Animals 2022 Count Your Chickens report, which looks at improving broiler welfare and corporate supply chains. We were included in a group of companies that are, quote, leading the industry in reporting measurable progress towards broiler welfare goals. It's a further example of the importance we place on responsible sourcing, and we think that our customers look to us and value us for it. It's been a busy few weeks and months for the business, and we remain energized and excited about our path forward. The next core strategy is setting us up for long-term growth and success even with a challenging macroeconomic environment. We look forward to providing updates on our progress in the coming quarters. With that, I will turn things over to Randy for a review of the numbers.