Blue Apron Holdings, Inc. Class A

Good morning and welcome to the Blue Apron Holdings first quarter 2023 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, May 4, 2023, 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. Should you need assistance on this call, please signal a conference specialist by pressing the star key followed by zero. On this morning's call, we have Linda Finley, President and Chief Executive Officer of Blue Apron, and Mitch Cohen, Interim Chief Financial Officer. Before handling 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. Actual results may differ materially from those indicated by those 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 filing. 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. During this call, the company will be referring to non-GAAP measures, which are not prepared in accordance with generally accepted accounting principles. You are encouraged to refer to the earnings release and SEC filings where it has defined these measures and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, I would now like to turn the call over to Linda Finley, Blue Apron CEO. Linda, please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us for an update on the business. On the call with me today is Mitch Cohen, Blue Apron's interim CFO. Given that our last update was just a few weeks ago, I'll start with a quick recap of our first quarter performance and shift my remarks to share an update on our go-forward strategy. Mitch will then provide a more in-depth review of our financial results. For our last earnings call, we are focused on reducing cash burn towards our goal of profitability, and we continue to deliver against that in Q1. However, we recognize that the business needs additional capital, and we are actively pursuing all opportunities available to us in order to meet our near-term obligations. While we don't have a completed deal at this time, this includes the potential of one or more financing opportunities or other strategic transactions, including significant commercial partnerships. Mitch will provide additional color. During the first quarter, we saw success in our efforts to continue driving efficiencies across the business, especially related to cash burns. Previously, we shared that, as of the end of February, we had accomplished a more than 50% reduction in annualized cash burn, and I'm very pleased to report even further improvement in the full quarter. At the end of the first quarter, our free cash flow burn was down approximately $19 million compared to the end of first quarter 2022, reflecting a 64% year-over-year reduction. As we move into the second quarter, we remain vigilant in managing cash burn and continue to identify areas to bring greater efficiencies into the business. We also continue to execute on our plans towards our goal of profitability. Notably, in Q1, we continued to strengthen our key customer engagement metrics. Average order value was $70.27, up approximately 12% versus the same period in the prior year, and down slightly from the fourth quarter of 2022. The year-over-year improvement reflects the annualization of price increases introduced earlier in 2022, while the sequential decline is related to some strategic investments in our promotional spend within the quarter. Excluding promotions, average order value was $72.19, clearly illustrating the strength of our overall offering. Average revenue per customer was $346, also down slightly from the fourth quarter as a greater number of new versus tenured customers purchased meal kits in the first quarter. As a reminder, newer customers tend to spend less on their initial boxes, but typically increase spending the longer they are with Blue Apron. Finally, orders per customer held strong at 4.9, as our customers continue to respond well to our menu variety and customization options. Total customers in the 12 months ended March 31st was 658,000, compared to 693,000 for the equivalent period a year ago. Much like the fourth quarter, the deliberate focus on marketing efficiency, coupled with reductions in overall marketing spend, drove the year-over-year change. Total customers in the quarter were 326,000 compared to 298,000 in the fourth quarter of 2022 and 367,000 in the first quarter of 2022. The change we made to our promotional strategy I mentioned earlier drove much of the sequential increase. When you look at our year-over-year results, the decline is a reflection of our intentional efforts to shift our focus to performance marketing along with a reduction in marketing spend. These shifts also have resulted in greater marketing efficiency and notable improvements in overall conversion, which I will discuss in more detail in a moment. Now, turning to our go-forward strategy, we remain focused on executing against our three strategic initiatives outlined previously. As a reminder, those are, one, taking a more targeted approach to acquiring and retaining more profitable customers while managing marketing spend, two, driving margin improvements, And three, executing disciplined cost management in PTG&A. I'll start with marketing. Our efforts here continue to be aimed at delivering on profitability and scale. As discussed on our fourth quarter earnings call, we have proactively shifted our marketing spend towards performance-based and digital channels that deliver a strong cost per acquisition. In the first quarter, marketing spend was $14.7 million, a reduction of 14% sequentially and 47% year over year. Alongside the reduced spend, we are also seeing significant improvements in payback periods with a return to pre-pandemic payback levels of far less than a year. By taking a more holistic approach to our investment in working media and promotions, we are seeing strong improvements in cost per acquisition, building on our early success in the fourth quarter of 2022. In Q1, we reduced cost per acquisition by almost 50%, and now it's at its lowest level since 2019. We achieved this while simultaneously increasing our conversion rate by approximately 24% sequentially in the first quarter. One of the key drivers of our success is our focus on testing marketing channels we know are effective for us while overlaying a promotional strategy that allows us to attract the right customers. These improvements are representative of our ability to scale our marketing in a way that benefits our bottom line, as evidenced by improvements in acquisition, retention, and customer KPIs. In support of our marketing efforts, we continue to build our network of partnerships. Recently, we announced a new chef partnership with Molly Yeh. In collaboration with our culinary team, Molly created a limited-time offering available with or without a subscription. We know limited-time boxes are a great way to engage current and prospective customers. The seasonal boxes have proven to deliver on higher order rates and average order value during the weeks we offer them, along with incentivizing unskipped behaviors and account reactivations. As we continue to build towards our goal of achieving profitability, we are all assessing our existing partnerships. Notably, we have decided to pause the availability of our product on Walmart.com beginning this month as we continue to prioritize activities and partnerships that drive ROI and profitability. We continue to work on other third-party sellers, including Amazon, and remain active in pursuing new partnerships and sales channel opportunities where they align closely with our focus on profitability. Moving to our second commitment, driving margin improvements, in the first quarter, variable margin increased to 35.8% from 34.9% in the fourth quarter and 32.5% in the same period the prior year. The improvements in variable margin were driven by continued cost management and productivity improvements, along with efficiencies implemented over the past several months. Operational efficiency improvements we started implementing in the fourth quarter continue to deliver benefits to the business. Our work includes a reduction of idle time on pack lines, consolidation of shipments into a smaller number of trucks, and an improvement in material handling and inventory management. This work resulted in higher throughput of boxes per pack line hour and a reduction of labor minutes per order, which is especially impressive as they came in tandem with increased meals per order, ingredient, and recipe count. We see continued opportunity and margin improvement as we implement more efficiencies throughout the coming year. Turning to our third commitment, cost management. As I noted earlier, we've achieved a 64% year-over-year reduction in free cash flow burn in Q1 as compared to the same period in the prior year. In tandem with this reduction, we are also pursuing additional external funding to meet our near-term obligations. While we believe the bulk of these cost reductions have been implemented, we continue to evaluate ways to achieve further incremental cost efficiencies through the course of the year. Overall, we believe our efforts to date provide a solid foundation for us to continue on our path to achieving profitability. With that, let me turn it over to Mitch to go through the financials. Mitch?

Thank you, Linda, and good morning, everyone. I'll first begin with an update on our liquidity position before diving into the first quarter's performance for the quarter ended March 31st, 2023. Our cash balance at the end of the first quarter was $31.6 million as compared to $33.5 million as of the end of the fourth quarter of 2022. Our cash position at the end of the first quarter reflects a number of factors, including equity proceeds primarily from our active market offering launched in November 2022, our debt paydown and the success of our efforts to drive operational efficiencies and cost reductions. Starting with our at-the-market offering activity, in January of this year, we completed our November ATM, which resulted in proceeds of $16.2 million net of commissions. In addition, in February 2023, we launched another at-the-market offering, which provides us with the option to sell, from time to time, up to 70 million new shares. Substantially, all the 70 million new shares remain available. With regard to debt pay down, as noted on our previous call, we amended the note purchase agreement in March. The amendment requires us to pay down the remaining balance of our interest of our $30 million outstanding senior secured notes in four monthly equal installments of $7.5 million. To date, we have paid $15 million of the $30 million principal amount. The first $7.5 million installment was paid in connection with the signing of the amendment in March, and the second $7.5 million was paid in April. The third payment is scheduled to be made this month, and the fourth and final payment due in June 2023. Because the outstanding amounts owed to us from Joe Sandberg's affiliates continue to be delayed, we will need additional funding prior to the middle of June. As Linda mentioned, we are actively pursuing all opportunities available to us to meet our near-term obligations. This includes one or more financing opportunities and or other strategic transactions, including significant commercial partnerships, although there can be no assurance that we will close any such transaction. Our ultimate goal is to get to the path of stabilized balance sheet and long-term profitability. Turning to the first quarter results, net revenue was $113.1 million, up 5.9% sequentially and down 4% year-over-year. The sequential increase was driven by the growth in customers and increased order volume in the quarter. The year-over-year decline was driven by the reduction in customers in the 12-month period alongside a reduction in the order volume in the period. As Linda mentioned, average order value was $70.27, down modestly from the fourth quarter of 2022 to the increased promotional spend in the quarter. Order per customer for the quarter was 4.9, as customers continued to respond well to our menu variety and customizations. Turning to expenses, variable margin was 35.8% for the first quarter. This is a 90 basis point sequential increase and a 330 basis point increase over the prior year period. The improvement to variable margin was driven by ongoing efforts to drive operational efficiencies and lower our costs per box. These efforts include better managing our labor expense and reducing our food and packaging costs. In the first quarter of 2023, PTG&A costs were $35.7 million, a 4.1% increase sequentially. The fourth quarter of 2022 included a significant reduction in include bonus expense, reflecting the decision to pay out lower year-end bonuses in the first quarter. Notably, first quarter PTG&A represented an 18.7% decrease year-over-year, reflecting our successful efforts to reduce costs. The year-over-year decrease was driven by the prior year impact of the retirement of carbon offsets as well as corporate headcount reductions implemented late in the fourth quarter. Free cash flow was a negative $10.8 million, an improvement of 64% year-over-year. Factoring in our at-the-market activity and the paydown of debt, our net cash decrease was less than $2 million in the first quarter. Looking at the bottom line, we reported a net loss of $17 million for the first quarter compared to a $38.7 million loss in Q1 2022 and a $21.8 million loss in Q4. In the first quarter, adjusted EBITDA was a loss of $8.7 million compared to a $31.4 million loss in Q1 2022 and a $13.5 million loss in Q4. Our significant reductions in cash burn and adjusted EBITDA loss are indications that Our efforts to reduce cost and drive efficiencies are working as planned, including our work to manage marketing expenses, reduce PTG&A, and improve variable margin. As noted, our first quarter cash burden includes the impact of $7.5 million debt pay down as we paid the first of our four monthly installments in March. We continue to make good progress against our operational goals. This said, we will continue to evaluate ways to achieve further incremental cost efficiencies through the course of the year, as we continue to actively pursue sufficient additional funds needed to fund our near-term obligations. Overall, we believe the efforts to date provide a solid foundation for us to continue on our path to achieving profitability. With that, I'll turn things over to the operator to open up the call for questions. Operator?