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Edited Transcript of APRN.N earnings conference call or presentation 2-Aug-18 12:30pm GMT

Q2 2018 Blue Apron Holdings Inc Earnings Call

NEW YORK Aug 3, 2018 (Thomson StreetEvents) -- Edited Transcript of Blue Apron Holdings Inc earnings conference call or presentation Thursday, August 2, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bradley J. Dickerson

Blue Apron Holdings, Inc. - CEO, President & Director

* Felise Glantz Kissell

Blue Apron Holdings, Inc. - VP of IR

* Timothy Bensley

Blue Apron Holdings, Inc. - CFO

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Conference Call Participants

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* Edward James Yruma

KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst

* Heath Patrick Terry

Goldman Sachs Group Inc., Research Division - MD

* Mark Alan May

Citigroup Inc, Research Division - Director and Senior Analyst

* Matthew A. Trusz

G. Research, LLC - Research Analyst

* Michael Patrick Graham

Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst

* Ross Adam Sandler

Barclays Bank PLC, Research Division - MD of Americas Equity Research & Senior Internet Analyst

* Youssef Houssaini Squali

SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst

* Zachary Schwartzman

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning, and welcome to the Blue Apron Holdings Second Quarter 2018 Earnings Conference Call and Webcast. This call is being recorded. Following the conclusion of today's remarks, the Blue Apron team will be taking your questions.

With that, I'd now like to turn the call over to Felise Glantz Kissell, Vice President of Investor Relations and Corporate Affairs. Ms. Kissell, please go ahead.

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Felise Glantz Kissell, Blue Apron Holdings, Inc. - VP of IR [2]

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Good morning, everyone, and thank you for joining us. On this morning's call, we have Brad Dickerson, Chief Executive Officer of Blue Apron; and Tim Bensley, Chief Financial Officer. Brad will first strategically discuss the business and Tim will then review our financial performance.

Various remarks that we make during this call about the company's 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 various important risks and other factors, including those described in our earnings release and the company's SEC filing. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update these statements.

During this call, we will be referring to non-GAAP financial 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 we have described these measures in more detail, and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, reconciliations of certain forward-looking nonGAAP measures referred to during this call are on our Investor Relations website located at investors.blueapron.com under Events & Presentations.

With that, I would now like to turn the call over to Brad Dickerson, Blue Apron's CEO. Brad?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [3]

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Thank you, Felise, and good morning, everyone. I'd like to begin by welcoming Tim to his first earnings call with Blue Apron. As you know, Tim joined us as CFO in late May bringing over 30 years of leadership in the consumer packaged goods and food retail industries. Tim has quickly immersed in the business and will make a significant impact as we evolve our product portfolio and the ways consumers access our brand.

Before I provide an update in key areas across the business, I'll highlight 4 clear themes from our second quarter results. First, we continue to drive operational efficiencies throughout our fulfillment center network as reflected in the 110 basis points sequential cost of goods sold improvement from the first quarter, despite increased summer packaging cost. Even more impressive is the 400 basis point improvement year-over-year, a testament to the significant progress we have achieved since launching our Linden, New Jersey fulfillment center. These efficiency gains have been a key driver of our continued year-over-year improvement in adjusted EBITDA performance.

Second, we reached an important milestone that further builds the foundation of our future with the launch of our retail product offering.

Third, revenue per customer has been relatively stable over the past few quarters reflecting steady engagement metrics from our customers during a period when operational stability took priority over product innovation.

And finally, attracting new customers efficiently is an area we must improve. While we have been successful in driving customers to our platform, we must improve the rate at which they convert to paid subscribers.

With fulfillment operation strengthening, our primary forward focus is to enhance our product portfolio and deliver a seamless digital experience which we expect to benefit conversion.

Entering 2018, we articulated that this year would be a year of transition and building for sustainable growth. And it would take time to build top line momentum particularly given our significant pullback in marketing spend in the second half of 2017. At the time, we did not have complete visibility into how this transition would impact 2018, including the effects on the business and returning to a more normalized marketing spend case.

We did see some positive momentum in the first quarter of 2018 as we increased marketing spend from the fourth quarter of last year. However, it was challenging to maintain this momentum throughout the second quarter as we implemented a more consistent pace of marketing spend with a focus on efficiency.

Our priority is to continue to transition our business and execute on the key strategies that will position us for sustainable, long-term growth while remaining prudent with our marketing spent, with a deliberate focus on attracting customers with high affinity and deepening engagement with current customers.

Our strategies are centered on the evolution and expansion of our existing products assortment, enhancement of our overall customer experience and the launch of our retail and on-demand offerings. I will go into more detail on each of these growth opportunities shortly. As we execute on these strategies in the next few quarters, we expect our marketing spend will become more efficient.

While we are confident that our approach will build a strong business for the future, our revenue performance will be impacted in the near term, which Tim will discuss shortly. As we execute throughout the second half of this year, our ability to leverage the strength of our brand, deepening engagement with customers and utilize an increasingly differentiated operational capability will be a powerful asset. We're not wavering from our goal of double digit revenue growth and adjusted EBITDA breakeven for 2019 with adjusted EBITDA breakeven potentially occurring as early as the fourth quarter of this year depending on our progress. This milestone will not be easy. However, we believe we are pursuing the right initiatives to achieve this goal. I will discuss some of these key strategies in more detail.

To start, a quick update on our multiproduct and multichannel strategies. These strategies will enable us to expand the reach of our brand by meeting new and diverse segments of consumers on their terms. We are focused on serving consumers with specific behaviors in mind, whether they are planning a week of meals a few days in advance, browsing the aisle of a store, looking for a grab-and-go offering on their way home or seeking a product that can be delivered on demand. As we accelerate this strategy, we are deliberate in selecting distribution channels to best serve these distinct customer mindsets.

With this framework in mind, I'll now provide an update on our latest channel expansion initiatives. First, we remain focused on our opportunities within retail. Since launching a pilot program with Costco in early May, we have tested our offering in multiple regions across the country, applying learnings to our monthly rotation of recipes to best serve the Costco consumer. Today our product is available in approximately 80 locations. While still early in this pilot, the past 3 months have further validated to us the power of Costco's retail platform.

Second, in the coming months we plan to test on-demand delivery of Blue Apron meals through our own e-commerce platform and third party delivery partners. Among our first initiatives is the launch pilot on the East and West Coast to generate learnings from these programs and incorporate into our strategies. We view our expansions into new channels as a complement to our existing business. There is a distinct value proposition for our core direct-to-consumer offering, including a more diverse product selection, the ability to preplan multiple meals simultaneously and engaging digital experience and delivery to one's doorstep.

That said, we appreciate that many customers prefer to make their dinner choices closer to the occasion. We expect that solving for these varying consumer needs and behaviors will expand our overall customer reach. We will update you on our progress as we pursue these channel expansion initiatives, including our Costco and on demand pilots as well as additional retail opportunities we plan to activate.

Now I'll share an update on the 3 strategic priorities guiding our business. One, build an agile and efficient operation infrastructure that serves as key competitive advantage. Two, create a diverse product portfolio that consumers can access through multiple channels, and three, strengthen and amplify our brand.

First on operations. As I said earlier, we continue to gain efficiencies throughout our fulfillment center network which has resulted in greater cost savings, increased speed of execution and improved agility. Our margin gains, which have improved sequentially over the past 3 quarters as well as our ability to fulfill demand created by our pilot with Costco, reinforce our progress. Building an agile and efficient fulfillment center and logistics network supports our growth strategy while providing a competitive advantage for the business.

While we are pleased with these steady improvements, there are many additional efficiencies yet to be realized. In June, we announced the appointment of Alan Blake, our Chief Supply Chain Officer. Alan is an accomplished supply chain leader with more than 3 decades of experience at leading consumer packaged goods, beverage and food companies. Alan has also managed an extensive network of both internal and third party distribution centers, a competency that will be valuable to us as we expand our product and channel portfolio. The leadership and discipline that Alan brings to Blue Apron are tremendous assets as we work toward driving improvements in our end-to-end processes, including further optimizing costs, automating additional steps of the fulfillment process and enhancing the customer experience. Our ability to be flexible and adaptive to new product offerings create differentiated customer experiences and achieve our 2019 goal of double digit revenue growth with breakeven adjusted EBITDA is inextricably linked to continuous optimization of our operational capabilities. We're extremely pleased to have Alan on board to build upon our recent progress.

Now an update on our focus to create new product offerings and expand the channels that consumers use to access our brand. Earlier I discussed how we're transforming the business to serve consumers with specific needs, behaviors and purchase considerations in mind.

I will highlight initiatives we have planned, many of which are already underway, to propel our direct-to-consumer revenue performance. These actions are directed by 2 objectives. First, expanding our menu offerings to address a wide range of cooking, taste and dietary preferences, and second, strengthening our e-commerce platform to enable a seamless and exceptional experience throughout the customer journey.

We are working to bring consumers more choice with new products that are informed by extensive data and analytics, in other words, what we know consumers want from us. For example, this quarter we increased our recipe and protein options on our Family Plan menus to increase flexibility for customers. We also recently launched 2 new offerings to select customers that can be purchased on our direct-to-consumer platform, our Special Occasion Meal and our Summer Grilling Box, both designed for larger gatherings.

We will continue to innovate with unique culinary occasions in mind leveraging the capabilities we have built to fulfill these needs. And in the coming months, we will add new customized recipe offerings to our menus. In September coinciding with a back-to-school season, we plan to introduce a selection of recipes that can be prepared in 20-25 minutes, a significant time saver compared to many of our current menu selections. Also in the fall, we plan to offer recipes compliant with Whole30, a popular lifestyle program that encourages consuming wholesome nutritious foods.

As you may recall, we launched a successful 8-week partnership with Whole30 in January. We know based on extensive feedback that the Blue Apron Whole30 recipes are a solution for health-focused consumers and we look forward to extending this partnership.

We have closely studied behaviors on our direct-to-consumer platform to identify ways we can remove friction from the experience to best attract and retain high affinity customers. For example, we plan on shortening the period between when customers make their meal selections and when they receive their box. We also plan on allowing customers to easily toggle between our 2 plan offering, Two-Serving and Family, to better serve their lifestyle needs. With our preliminary tests, we have seen encouraging engagement from customers as we implement these platform enhancements. Providing an exceptional end-to-end experience for our customers is an ongoing priority. We'll continue to critically evaluate our platform and make any necessary changes to deliver a more seamless customer experience.

As we evolve our product portfolio, we remain committed to sourcing high quality ingredients for our customers and ensuring the health and well-being of animals raised throughout our supply chain. In June, we were proud to publicly share the results of these efforts and to announce a set of additional goals to drive further progress in our animal welfare work. As part of this announcement, we were recognized by Compassion in World Farming, a leading international farm animal welfare organization, for our commitment to using higher welfare chickens, becoming the first U.S. based company to receive the organization's prestigious Good Chicken Award.

Lastly, I'd like to share an update on our work to further strengthen and amplify the Blue Apron brand. Building trust and confidence in our brand is a key driver of our growth strategy. This quarter we launched 2 exclusive partnerships and a series of experiential activations across the country to create new touch points that engage customers.

In May, we announced the partnership with Chrissy Teigen, a New York Times best-selling cookbook author widely known as a passionate home cook, that created additional relevance for our brand. In late June, we announced a partnership with 20th Century Fox to bring three recipes from Bob's Burgers, the Emmy Award winning animated series, to our menus. We have been pleased with the enthusiasm and the widespread interest we received from consumers for both of these partnerships, which speaks to our ability to align our brand with high profile influencers and demonstrate how we are creating discovery for our customers.

In the second quarter, we also launched Blue Apron Unboxed, a series of national pop-up activations intended to bring communities across the country together in celebration of home cooking as well as build additional awareness and affinity for our brand. The events included a short-term experiential retail location in New York City, movie nights in Austin, Dallas and Minneapolis and mobile pop-up experiences in Los Angeles, Seattle and San Francisco. These events are opportunities to extend our brand and create physical emergence outside of the home where customers typically enjoy our product. We will be launching several additional brand activations in the coming months.

Before I turn the call over to Tim, I want to reiterate that we are focused on the priorities we expect will have a positive impact on our ability to return the business to a growth trajectory, evolving and expanding our existing product portfolio, enhancing our overall customer experience and continuing to launch our retail and on-demand offerings, all fueled by our increasingly differentiated operational capabilities.

Our focus is on the future, building the foundation for long-term sustainable growth. While our transition is taking longer than we expected, our teams are driving toward our goals for the business, all while exerting sound financial discipline.

Tim, I'll turn the call over to you now.

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [4]

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Thanks, Brad, and good morning, everyone. It's great to be at Blue Apron and partnering close with Brad and the team to advance our strategies with a particular focus on driving sustainable top line growth across multiple products and channels, gaining additional COGS efficiencies, prudently managing expenses and optimizing the business for value creation.

As someone who has been a consumer sector centric companies for over 3 decades, I'm confident that we're making the right strategic improvements in the business to benefit the organization long term. We expect many of these actions to favorably impact our financial performance later this year and pave the way for a strong 2019.

As Brad mentioned, our leadership team is now fully in place and in the weeks that we've been together, we've already begun implementing several initiatives to accelerate growth in the core business and pursue opportunities across new distribution channels. The team is aligned on the immediate work ahead to reach the levels of performance that we expect of ourselves and is highly focused on driving results.

Turning to our second quarter performance, net revenue was $180 compared to $238 million in the year-ago period and $197 million in the first quarter, reflecting, in part, the seasonal cadence of the business. In the second half of last year, we deliberately prioritized operational stability to ensure a better customer experience and position us for the future.

Fast forward to today, while this action resulted in near-term revenue headwinds, it enabled us to solidify a strong operational foundation that allows us to capitalize on strategic opportunities. Simultaneously, we are taking decisive actions to reinvigorate our direct-to-consumer platform. This includes implementing the customer-focused strategies that Brad mentioned such as broadening and improving our product portfolio while creating a frictionless customer experience.

On the cost side, COGS excluding depreciation and amortization as a percent of net revenue improved 400 basis points over the prior year to 64.7%, primarily due to efficiencies in food costs relating from enhanced planning processes. COGS improved 110 basis points quarter-over-quarter, largely from increased efficiencies in labor and shipping costs, which more than offset our typical summer packaging costs.

As part of our ongoing effort to effectively manage costs and provide an enhanced customer experience, we recently signed a new multi-year contract with our largest transportation and logistics provider, FedEx. We anticipate this action will consolidate and increase efficiencies in much of our last mile delivery network. We are proud of this operational milestone, particularly given the significant pricing challenges in today's transportation environment.

Marketing as a percentage of net revenue was 19.3% in the second quarter compared to the prior year of 14.5% and 20% in the first quarter of 2018. In the second quarter, we remain deliberate in our spend with a focus on efficiency as well as investments in influential brand partnerships and experiential activations. As the year progresses, we will continue to align our marketing efforts closely with the product and channel launches -- with the product and channel launch strategies we expect to unveil through the remainder of 2018.

Product technology in G&A, or PTG&A, cost decreased 22% year-over-year to $51 million reflecting our commitment to tightly manage cost particularly in personnel and overhead with a slight increase in PTG&A cost quarter-over-quarter. We will continue to pursue opportunities to optimize our cost structure in the second half of 2018.

Driven by expense management and ongoing COGS efficiencies, we improve second quarter adjusted EBITDA by 27% to a loss of $17.5 million compared to the prior year. Our adjusted EBITDA performance in the second quarter was relatively consistent with the first quarter despite the expected seasonal trends in our business.

Finally, our cash flow profile continues to improve in both the second quarter and year-to-date as a result of narrowing our adjusted EBITDA loss and a significant reduction in CapEx spend versus the prior year. We are investing prudently and now expect full year CapEx to be in the low end of our $20 million to $25 million range. We are proactively working towards refinancing our revolving credit facility given our improving cash flow and our path to breakeven adjusted EBITDA. We expect to provide additional updates as these efforts progress.

Turning to our financial outlook for the remainder of 2018, we now expect net revenue will take longer to return to growth than originally anticipated with net revenue declining year-over-year in both the third quarter and to a lesser extend in the fourth quarter as we implement the customer focus strategies we spoke of earlier. Despite this lower revenue outlook, we remain confident in our ability to drive bottom line performance led by additional operational efficiencies in COGS and PTG&A savings.

COGS as a percentage of net revenue is still anticipated to be approximately 65% to 66% in 2018, a 500 basis points to 600 basis points improvements from 2017. As a result of the slow recovery in revenue and improved outlook on cost, we now expect full year net loss for 2018 to be in the range of $135 million to $140 million and adjusted EBITDA loss of $65 million to $70 million, a year-over-year improvement of approximately 50%.

Specifically for the third quarter, we currently project net revenue to be approximately $150 to $160 million, marketing spent as a percent of net revenue to be 17% to 18%, COGS excluding depreciation and amortization as a percent of net revenue to be in the range of 67% to 68% with higher seasonal packaging cost during the peak summer months, net loss of approximately $40 to $45 million, and adjusted EBITDA loss of approximately $20 million to $25 million.

In summary, our now fully-formed leadership team is intensely focused on execution against our strategic initiatives. The expansion of our multiproduct, multichannel strategy and the execution of our plan to further improve our direct to consumer offering are examples of the growth opportunities ahead. We are also committed to making significant progress on bottom line performance with our focus on operating efficiencies and cost savings continuing to reduce losses on our path to adjusted EBITDA breakeven. Thank you.

With that, Brad and I will now take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). The first question will come from Matthew DiFrisco of Guggenheim Securities.

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Unidentified Analyst, [2]

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This is (inaudible) for Matt. Brad, I have 2 questions on the multichannel strategy. The first, can you provide a cadence of the 80-store pilot with Costco? I'm just trying to determine an organic number for 2Q and therefore derive the impact on the second half of the year from the Costco orders. And secondly, what is the potential for additional skews or additional retail pilots as we look forward?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [3]

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So on the Costco question specifically, obviously it has been a valuable opportunity for us to test our on-demand concept more broadly. And as we went through the second quarter, if you remember, we started this pilot with approximately 17 locations in 2 regions and during the course of the quarter were able to really test some more regions. So we've actually tested in 7 of the 8 Costco regions and as I stated in my prepared remarks, in approximately 80 stores right now. A lot of this is -- it's why the pilots like the test, we're learning about a lot of different things, how to manage through varying recipe velocities, how to manage through changing recipes on a monthly basis, different regional case profiles and so forth. So the purpose of the whole pilot is to work through all the things that were great and some of the things that are more challenging and learn from them and be able to manage the business going forward. So the great news here is obviously that we've expanded our presence within Costco in 80 stores. But this is something that continues to be a pilot, we'll keep testing going forward and hopefully test in more locations and obviously we'll be testing more recipes, learning about more -- again the regional taste profiles and continue to hopefully expand going forward. So happy with where we're at right now and in taking it from 17 stores that we started with to now approximately 80. But still we're in the process, we've got a lot to learn and we'll keep moving forward. In that process, in that linear process, we have tested some locations within regions also and in the swapping out of some recipes, there are some stores we may have been in one week and maybe not the next in that transition from one recipe to the other. So it hasn't necessarily been a linear process. But the important thing for us is this continuing pace of increasing exposure and increasing store count overall on a month-by-month basis with Costco. On the second piece, on additional skews and additional retail partners going into this, the one thing we were really focused on was being very deliberate in the partners that we choose to work with going forward and we talked about how excited we're working with Costco in their prominence, obviously in the grocery business. So we've spoken with -- we've been speaking to many other partners, we've talked about that historically also and we're working through potential other partnerships and arrangements going forward. But we want to make sure that we're speaking with and engaging with the brand right partners for our brand and we also want to make sure we're setting ourselves up for success as we enter into future pilots and tests with other partners down the road. Obviously that also comes with product and variations of products and recipes from our existing core product and also what we're serving at Costco. So more to come on that. We are in varying conversations right now and again we would expect that we'd have some more partners along the way as we work our way forward.

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Unidentified Analyst, [4]

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Great. Is it possible to provide an organic revenue growth number in the second half of the year?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [5]

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It's too early right now. I mean, again I think the -- when we're in pilot stages here, I want to be really careful because there're so many things we're testing and we're learning on this, so I want to be careful of that. Again my -- our goal here is to continue to expand our presence within Costco. That's who we want to keep driving forward. And hopefully engage with some other partners along the way here. But in this early stage, it's really hard to kind of give you that number.

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Operator [6]

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The next question will come from Rupesh Parikh of Oppenheimer.

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Unidentified Analyst, [7]

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This is actually (inaudible) on for Rupesh. Thanks for taking our questions. So I wanted to touch on the top line here. So clearly you have a lot of initiatives under your belt. So I was hoping maybe you could talk about your confidence in getting back to that double digit revenue growth next year. Just any thoughts you can provide here would be super helpful.

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [8]

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This is Tim and I'll probably go ahead and jump in and take a shot at that first. As we move into next year, there is probably a number of things that we have to do to get to our overall goal of breakeven EBITDA, but certainly getting to revenue growth is an important part of it. And one thing that's interesting in the way that our equation is built this year is, we're continuing to do a really nice job of driving people to our site and doing it efficiently with our marketing spend where we've really had more difficulty as once we get people to the site and getting them to convert to the actual subscribers. And we think that the key to solving that kind of conversion problem is the initiatives that Brad talked about earlier. So we're talking about how do we get -- how do we create new product offerings that address basically a wider range of consumer preferences, how do we strengthen our DTC platform to drive what we describe as kind of a more frictionless and more flexible experience for our customers. Doing those things is what we believe is actually going to drive that conversion number up on the kind of consistent number of site visitors that we have and if we do that, that direct-to-consumer model will return to growth and hopefully return to growth then with continued efficient spend on marketing. Clearly, the second part of it is what Brad was just talking about and we've got to be successful in the expansion of our multichannel strategy as well. Costco is the first place we're doing that. We think it's the best place for us to learn and be successful, and hopefully will allow us to expand into some other retail partners beyond that. But that idea of sort of getting out there and meeting customers on their terms, channel strategy is a big part of our ability to return to growth as well.

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Unidentified Analyst, [9]

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Okay, that's very helpful. And then maybe you could just touch a lot bit on how you're thinking about cannibalization at retail of your DTC offering and how you kind of you view the incrementality of that at this juncture now that you've had a couple months under your belt with the Costco launch.

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [10]

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Yes, great question. And obviously we're very focused on that, but the way we're approaching this and again this is kind of in my prepared remarks. We believe there's a distinct value proposition for our customer in our core product offering today in that there is the ability to acquire numerous meals at once, get it delivered to your doorstep. Obviously, much more variety and choice in a week-by-week basis that's changing, and the recipe is changing in a week-by-week basis. So we believe there is a consumer that that's a distinct value proposition for. We also recognize that many customers who may have left our subscription platform in the past that we surveyed have cited subscription as a challenge for them, based on their lifestyle and their -- what they need to do week-by-week. And also we believe that many customers that we haven't accessed historically, also we believe that subscription or the challenge maybe of them historically that they've been buying their food physically in a retail location and buying food online is a challenge for them. We believe many customers would choose to access our brand through more of a retail location. So when we look at our on-demand offering, I see 2 things. One, in a physical retail location, we believe it gives us the ability to actually access many, many more customers that we would be able to access through our core offering for whatever reason, whether it be subscription holding them back or ordering online holding them back. And second, it's starting to test our own on-demand product on our platform with some delivery partner partnerships going forward and that gives us the ability to also access the customer on our platform where subscription and the commitment of subscription may be something that's more challenging for them based on their lifestyle. So although there's likely to be a little bit of cannibalization, and we would expect that to happen, the purpose of this expansion is less about that. It's more about accessing an increasing number of customers and giving customers access to our brand that we otherwise probably wouldn't have because of the challenge for them of a subscription and/or ordering food online.

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Operator [11]

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The next question will come from Edward Yruma of KeyBanc Capital Markets.

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Edward James Yruma, KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst [12]

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I guess first on advertising, obviously didn't take it up quite as much as you would have expected flat year-over-year. What is the advertising dollars you're spending today, tell you about your new customers or are they turning faster, kind of what behaviors are you seeing? And you kind of intimated that you may be changing or shifting advertising strategy. I guess, what do you hope to achieve through some of the changes you're contemplating?

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [13]

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This is Tim, let me jump in and take a shot at that. I wouldn't say that we're changing advertising strategies although I would say that we are getting smarter and smarter about understanding what the most efficient channels are where we're spending our marketing as well as what are most efficient times of year to spend that money. And so as we move forward, the idea is to really leverage both of those to be as efficient on our marketing spend as we possibly can going into the future.

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [14]

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And I would just add on to that that marketing obviously is connected to a lot of other strategies that we have in our organization. So we have talked about doing more brand engagement and you saw that during the course of the second quarter with our Unbox program, and beyond just the transactional acquisition marketing that we've historically done, we believe it's really important to continue to drive brand and highlight credibility and authority in our space and you've seen that from us. So taking some of those dollars and making sure that we're having deeper engagement with customers and doing some more nontraditional brand building for our space, at least nontraditional, is important to us to continue to drive that brand. We think that's going to be important in an increasingly dynamic environment that we have in our industry. And then to Tim's point around conversion and so forth, it's interesting that -- there's a lot of things that impact the efficiency of our marketing. So we're very focused on what are those things that can actually help marketing moving forward. And to Tim's point before, as we spend marketing, we're getting the site visits. So I think that goes to the strength of brand and the credibility of our brand and our space. People are interested in looking at our brand in our space. What's been a little bit more challenging for us as we progress through the second quarter was on converting those site visits to paid subscribers. And that obviously is the trickier part, there's numerous things that go into that around everything from pricing to merchandising to product offering, to customer experience. And again in an increasing dynamic industry, we think we need to be excellent in all of those things. So we're really focused in all of those things that can help drive conversion and make marketing more efficient as we look to continue to spend marketing going forward. So not necessarily changing the strategy of how we spend marketing, but focusing on those key drivers that can make marketing more efficient for us, which just so happened to align very clearly to some of our products strategies and customer experience strategies and so forth. And then also the good news here is that, when we do get customers in our platform, if you look at our revenue per customer number, that has been relatively stable over the last few quarters. So the good news there is when customers do get on our platform, they're relatively engaged in the same manner. And obviously the margins of that engagement that we operate in are getting better over time too. So there's a lot of positive things once we get customers in our life cycle here. So we just have to make sure that we are doing the strategic things that make it easier for them to join our platform.

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Edward James Yruma, KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst [15]

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Great. And one more follow-up if I may. Obviously it's a nice gross margin performance. You have a number of tests underway, right, Costco, the pop-ups. How should we think about the headwinds at some of those test play in the gross margin and how does that kind of go moving forward?

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [16]

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Yes, I know I think that's great, great question. The -- one way to think about this is while we've had improving gross margins and we're really proud of the improvements that we've made in the overall cost, the other really big thing that we've done with the facility centers is they've become way more operationally capable. And that is as important in many ways that the gross margin improvement that we've shown. So being able to do things like expand our product portfolio, be much more flexible in the menus that we're offering, all of the things that Brad talked about, in addition to supporting this multichannel strategy out of our fulfillment centers, that's the capability we really wouldn't have had a year ago, that we now have today, in addition to facility centers that are operating more efficiently. So as we move forward, obviously during the test phase, we're not at scale at this point. So we're not really seeing the kind of gross margins out of retail that we expect to see ongoing. But as we move forward, there's a lot of trade-offs in the 2 equations. In the retail model, we essentially have a model where we have much lower acquisition cost, much lower marketing cost than we have in a DTC model. We actually have lower shipping costs that we're shipping for trailer loads into retailer distribution centers versus shipping direct-to-consumers. And all of those, we have less packaging cost and that actually have to go into the packaging as the materials stay in refrigeration. The flipside to that is obviously we have to share margins with the retailer. But the net of all of that is we really feel like once we get to scale that the retail business should be margin neutral to potentially even gross margin accretive. And that's what we're working towards.

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Operator [17]

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The next question will come from Matt Trusz of ‎Gabelli and Company.

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Matthew A. Trusz, G. Research, LLC - Research Analyst [18]

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Can you talk more about the on-demand opportunity with respect to how are the conversations going with third parties both in the delivery fulfillment side and the marketplace or platform side? Do you already have any agreements in place there?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [19]

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Yes, Matt, we are currently working through that. So we are talking about some specific locations on the East and West Coast, and until we have more definitive agreements, I'm going to be careful in announcing the locations and our partners. So we're in negotiation with some partners, we're working down towards the path of this. We do anticipate in the coming months that we're going to be able to launch both in East Coast and West Coast, test and pilot. And it may be at the same partner on both and maybe different partners on the East Coast versus West Coast and we're still kind of working through that. So I want to be careful to wait till we have more definitive agreements there. But the whole idea here again is, first and foremost, the test and the pilot. So this is another opportunity for us to reach a customer outside of our core that for whatever reason it may be, our core offering isn't appealing to them, again whether it's subscription or something like that. So our first opportunity will be to reach out and access customers who engaged with us in the past in these locations, many of which did not have a problem with our brand and our product offering, but more it was a fit in their lifestyle for the most part. That was part of the reason why they are no longer on our platform. So the ability to give them an option now to access our brand same day on-demand in a nonsubscription manner I think is going to be pretty powerful for a lot of consumers to engage with us. So that's what we're going to test and pilot is how successful are we in engaging and accessing customers who had been with us before, maybe are not with us now, how successful it can be and attract new customers in this, again people who maybe have not engaged with our brand for whatever reason in the past who now have the ability to engage with us on a kind of a one-off basis. And the same thing on-demand piece I think. Another one, it's really important for us, we do believe that a majority of customers like to make their choice on meals and what they're going to do for meals a little bit close to the occasion. So although our core offering is probably aligned to many consumers relative to pre-planning and stocking the refrigerator for meals for the coming week, we believe that many, many customers like to make that choice close to the occasion. So this will be again the ability for us to match, be little more flexible and meeting the customer on their terms and see how that offer tests out. So coming months, you have to look for some more announcements on this in the coming months. It will be test, it will be a pilot, we are going to learn a lot and then basically take those learnings and move forward from there.

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Matthew A. Trusz, G. Research, LLC - Research Analyst [20]

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Okay, thanks. And just to follow-up on something you had said earlier about lowering the lead time from recipe choice to time of delivery, is that something that will result in higher cost to you and would it have been possible in the past or is it totally unlocked by the recent operational improvements you made?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [21]

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I think it's highly unlocked by the recent operational improvements that we made and also improvements to our e-commerce platform. It doesn't create any additional costs for us at all. It's really something that we just have the capability to do and we think it is actually a big improvement to the overall experience. If you think about today if you've going to make a decision on whether or not you want your Blue Apron box to arrive 6 days from now and suddenly we say, hey, we can cut multiple days off of that, you have a longer time to make that decision. We think it's a big improvement to the customer experience as well as it should improve our order rate because obviously people will have longer -- a few more days to make that decision, know what's going on in their lives before they make a commitment to that box arriving. But it really doesn't increase cost for us at all, but the capabilities that we built in our fulfillment centers along with the improvements that we've made through our e-commerce platform just allow us to go ahead and start implementing that going forward.

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Operator [22]

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The next question will come from Youssef Squali of SunTrust.

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Youssef Houssaini Squali, SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst [23]

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Couple of questions. Brad, I want to go back to the marketing efficiency comment that you said. I think you said something to the effect that it was challenging for you to maintain the marketing efficiency you saw in Q1 relative to Q4. Maybe can you dig a little deeper into why that was, how much of that is you versus potentially competition having just gotten a little stronger and taking advantage of maybe what was going on in the marketplace? And then Tim, can you speak to just liquidity and capital resources, maybe speak to your cash burn levels for the second half and comment on whether the model as you sense today is fully funded through profitability?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [24]

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Thanks for the questions, the marketing efficiency piece. Yes, I think as we worked our way through the first half of this year, obviously we went from one of our lowest spend quarters in recent history for us in Q4 in marketing spend to a much more higher level of spend in Q1. So a lot of the benefit we saw coming out of Q4 into Q1 and through Q1 was just the sheer fact that we put more dollars into the market, understanding though that there was a little bit of momentum working against us because of the pullback in marketing in the back half of '17. But we put a lot more dollars in comparably in Q1 versus Q4. So we obviously saw some benefit to bumping that spend up in Q1 and coming out of Q4. As we started getting into the second quarter, now getting into a more normal cadence of marketing and if you recall based off of the last few quarters of '17 and so forth, it really haven't been on a normal cadence of marketing for a few quarters now. So Q1 to Q2, a little more of a normal cadence. We saw some challenges in the efficiency side, on the conversion side especially. So part of that I think is on us and I think part of it is the dynamic environment that we're in right now. The us piece, we have obviously in the focus on operations and the focus on improving margins, the unfortunate things that you're not focusing on when you're very, very focused on improving your margins and improving your bottom line are things like innovation and things like product creation and things like customer experience and digital experience. So understanding those things are very, very important drivers of acquiring new customers and keeping customers. It's very important for us to start to obviously elevate and accelerate that going forward. So from a strategy perspective, we've always been talking about adding new products as we get to the back half of the year and so forth, and now we are in the position with the margins where we're at where we can start to actually launch and land some of these initiatives around new products and enhance customer experiences of the ones that we just talked about. We believe those things will help us in marketing efficiency and that it will help attract new customers, when new customers come on our site with more products to choose from, more flexibility and ways to get to us and better customer service options. We believe that can only help in getting those customers to convert from a site visit to a paid subscriber. So we do believe some of those things are on us. Just as an anecdote, some things we played around and tested with pricing a little bit in the first half of the year and as we moved our way through the second quarter, towards the end of the second quarter and even recently post second quarter, although we've seen some declines in conversion year-over-year and sequential declines as we worked our way through kind of the second quarter, we've seen some of that stabilize in the most recent weeks, toward the end of the second quarter and a little bit post that, and some of that I think is from some of the things that we've done over the course of the last few months relative to pricing and also some things that we've put into place relative to new products and so forth. So on the external part of this, obviously a lot more folks in this space, a very dynamic space, that only strengthens the need for things like product innovation and great customer service experience. So although those are things that we kind of point the finger at ourselves for this because of our focus on operations, which was very much needed over the course of the last few quarters. The fact of the matter is that in an increasingly competitive environment, those things only compound themselves in the challenge of that. So I think it's important for us as we look forward now that launch new products, focus on digital experience, focus on the physical experience with the customer, attract new customers, give customers more reasons to interact with our brand, we think that can only help not only from the perspective of us as a company needing to do that, but us doing that in a more dynamic environment also.

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [25]

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Let me pick up the second part of the question, which is about our liquidity and cash burn outlook. First of all, certainly just kind of finishing up or just starting my third month, just I kind of passed over my 2-month anniversary. One of the key focuses when I came in here was on continuing to improve the strength of our balance sheet. Couple of, probably 3 different items to talk about here. The first one is, as we -- certainly year-to-date as we've improved our EBITDA performance and lower -- significantly lowered our capital spend versus a year ago our cash burn has significantly dropped versus what we were doing in 2017. As we go into the second half of this year, if we're able to do -- the first part of it is EBITDA, if we're able to deliver in the low end of the guidance that we provide on EBITDA, our cash burn will continue to improve sequentially in the second half, it's also going to of course significantly be better than it was in prior year. The second part is CapEx and I talked earlier about that we put out an improved -- some improved guidance on CapEx. We expect to spend about $20 million versus the older guidance of about $25 million that we're targeting. That would imply that our CapEx spend in the second half is going to be similar to the first half. So as long as we can maintain that, we should continue to be in good shape on second half cash burn. The third part of the equation is obviously what we do with our current outstanding revolving credit facility and I think I mentioned earlier that we're proactively working towards refinancing that and that's highly -- that our ability to do that is highly based on our improving cash flow profile as we continue to work to mark EBITDA guidance and hopefully start to approach something like breakeven EBITDA in the fourth quarter and 2019. Then hopefully we'll have that refinancing wrapped up in the coming months and when we do, we'll get back and provide additional updates on it.

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Operator [26]

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The next question will come from Ross Sandler of Barclays.

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Ross Adam Sandler, Barclays Bank PLC, Research Division - MD of Americas Equity Research & Senior Internet Analyst [27]

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Brad, just going back to the prior question on marketing efficiency and retention rates. I guess, you addressed the marketing efficiency, but how -- what are you seeing on the retention rate side as you build up these new flexible menu options? Have you seen any change in retention rates? And then if we look at the 3Q guidance, that implies around a mid 20% revenue decline and a reduction in marketing. I think historically you guys have used the fall season as a good time to ramp up marketing. So what's holding back that side of the strategy? Why not crank things back up? Any color there would be helpful.

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [28]

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Yes, so, Ross, on marketing efficiency and retention, the challenge for us we believe is more on the acquisition side of the business, not on the retention side of the business. If we can acquire customers in an efficient manner, the retention side of the business shouldn't be a challenge for us as much. And retention for us hasn't changed drastically year-over-year relative to what we've been seeing compared to history. So this is more top-of-the-funnel type things that we're focused on right now. It just so happens though that a lot of these strategies that we're talking about that are new strategies that can improve the way we acquire customers, more products, more flexibility, better customer service, obviously should also help retention to some level also. So there's a byproduct benefit to retention in that in theory. So we're more focused on the top-of-the-funnel knowing that some of these things should also help on the retention side of the business too. As far as the Q3 guidance goes, for us focused on efficiency and marketing, focused on that efficiency is really important to us. So before we start to press the pedal down too much on marketing, although we're kind of in a normal cadence now of how we're spending, we really want to execute on some of these strategies. So for us, just putting more money into the top of the funnel when you're working on things that likely will help your conversion and make your marketing more efficient, our goal here is to land some of these initiatives during the course of the back half of this year around products and around customer experience and see what the impact to conversion is and if we can get a positive impact to conversion and see some positive metrics there, that will give us more confidence to put more dollars at the top of the funnel. So we want to be careful in the timing of how we do that based on what we see in the results from some of our strategic initiatives more than anything.

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Operator [29]

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The next question will come from Michael Graham of Canaccord.

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Michael Patrick Graham, Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst [30]

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Just to kind of build on that last dialogue there, Q4 has typically been a down quarter for ad spends for marketing sequentially I think. You talking about -- continue to talk about a transition year and, I guess, should we think about sort of having things from a product and logistics capability in place and really sort of lean back into that at the beginning of next year and like is that really when you think e-commerce customers can start to grow again on a more sort of regular basis? And then I just wanted to ask also on the multichannel stuff, I mean, one of the real strengths of the business outlook has been the ability to positively impact the supply chain by being able to sort of predict what you're going to be offering for menu selection and those types of things? Does the multichannel strategy have the same benefits to the supply chain and helping you sort of build relationships with the suppliers and helping them sort of predict what they need to produce for you?

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [31]

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Yes, maybe let me jump in and talk about the first half, which is the relationship between marketing spend in the fourth quarter and what we're expecting for revenue in the fourth quarter and then how will that impact as we transition into Q1. We haven't provided specific revenue guidance for Q4, but a couple of things will have an impact on that we can talk about real quickly. First of all, as we do spend marketing coming to the third quarter and into the fourth quarter, the one place within the quarter that we do ramp it up a little bit and really lean in is during the back-to-school time. That is the part where we can -- time of year we can engage customers and hopefully bring some more people into the top of the funnel. And that can have a positive impact on Q4 and that'll be a focus of ours for sure. The second thing is Q4 to your point really is where we should start seeing the impact of the rollout of some of these new consumer facing initiatives that Brad talked about earlier, both on the side of the kind of improved product offerings as well as the more frictionless e-commerce platform. And to the extent that those things actually kick in, we could see some improvement in Q4 revenue as well. I mean, at a minimum we would expect Q4 to be no worse than our Q3 performance and to the extent that those initiatives that I just talked about have an impact, it could actually pick up. Now as we roll into Q1, of course Q1 is the time of the year that we would lean more into marketing as we have in each year. That's the real big time for us to engage consumers and really bring new people into the top of the funnel. We'll have some pretty exciting things going on as you move into the first quarter. We'll get marketing spending behind them and hopefully that ramp up in Q1 as it has in previous years will result in a ramp up in new subscribers coming on as well.

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [32]

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And Michael, on the second question, multichannel environment and the impact to supply chain, suppliers increasing demand and so forth, the good news here is we obviously have a lot of data from our 6-year history and we've obviously touched millions of customers along the way in that 6-year history and we have a lot of data around taste profiles and regional taste profiles, seasonal taste profiles, the impact to unique ingredients that we put on menus and recipes. So we -- all that data is very, very impactful to when we enter the retail space and in a multichannel space and on-demand. So utilizing that data is going to be very powerful for us in predicting what types of recipes that we believe will work the best in a multi-channel environment. Obviously the one unique facet of this though is that in a pure on demand -- I'm sorry, our core subscription business, our recipes standalone from a consumer offering on our core platforms. So the one nuance will be obviously that as we enter other, especially physical retail, there's a lot of other choice around us in physical retail locations. So obviously the one challenge there would be taking all that data from the last 6 years and making sure we look at that relative to being in a different environment where there's a lot more choice around us. So we've got a really strong culinary team working with our sourcing department and working with our partners, specifically in this case Costco, and utilizing all of this data to determine what we think what recipes are the best recipes to serve to the Costco customer based on a lot of the data we have and seasonal taste profiles and regional tastes profiles and so forth. So I think that that data was going to come into -- is going to be very, very handy for us as it works towards predicting demand in a retail space and also as it works towards the ingredients and the sourcing that we will need not only in the current recipe rotations, but future recipe rotations in a retail environment. So the data will be a big asset for us in that aspect.

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Operator [33]

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The next question will come from Heath Terry of Goldman Sachs.

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Heath Patrick Terry, Goldman Sachs Group Inc., Research Division - MD [34]

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I'm wondering, as you look at the customer attrition that you saw in the quarter, any sense either from exit surveys or any other sort of indicators that you've to look at, where those customers are going, are they dropping out of the customer base altogether, are they going over to competitors? Just any sense as to what's driving that or what alternatives they're seeking? And then particularly to the extent that you guys are looking at customers that have kind of reactivated over time, what you're seeing in trends on that front particularly as you guys have made some of the operating efficiencies and marketing efficiency improvements that you have? And then last one, as you look at the plan for incremental skews on the -- with your core online product, sort of where you are in terms of being able to (inaudible) options of scaling up the number -- scaling up and down the number of meals that are offered, the number of family members that are served, just in terms of that flexibility that you've talked about in the past?

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [35]

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Yes, Heath, so far as the first question, surveys on the way out, we're not seeing anything that's standing out drastically different as far as reasons why people would be leaving the platform. So I think there is the lot of the similar challenges that we've historically had along the way. We're not seeing anything stand out specifically that would be unique and different than what we've been seeing from trends over the 6 years. So nothing that is standing out at that point in time. As far as reactivations go, obviously as we add new customer experience initiatives and we launch them, we launch more flexibility and more products. We obviously try to tend -- we tend to try to match those up with exit surveys of customers historically who left us where those offerings may be more their concerns. So especially in the family side, if we've had some family customers in the past who may have exited, as we expand our family offering, was it likely be the first people that we reach out to. So we've seen some positive traction on the reactivation side when we have products and/or customer experience initiatives that match specific survey results for folks and with specific customers in their exit survey. So we will continue to do that obviously as we expand menu offerings and so forth going forward. Reactivation will be a major, major part on the acquisition side of obviously trying to get some ex-customers back on board as we expand offerings and so forth. As far as the increased skews and the core online and so forth, so a couple of things I've mentioned there is again ability to focus on flexibility, so toggling between 2 serving or a 4 serving on a week by week basis gives obviously a lot more choice and flexibility to customers, expanding menu options. It's something that we're very focused on. What we're doing as we do that though is our operations team and now with Alan on board, we're being very, very careful and clear on those things of how we do that and how we execute on that. So it won't impact the efficiency of our operation. So balancing really the benefit to the customer with more flexibility and choice, balance with our ability to execute on that internally is what that teams had been working through and we've been able to unlock some pretty good efficiencies in how we approach that and look at menus and recipes and ingredients and so forth to enable expansion without really increasing complexity to any large degree in our fulfillment centers. And then obviously we've talked about this in the past and this is going to be a focus of ours going forward and Alan brings a lot of great experience and this is the ability to also use third party fulfillment and manage third party fulfillment in the ability for us to scale offerings and product offerings and offer more to our customers. So in some of those offerings, that maybe would add too much complexity to our existing footprint, leaning on third party fulfillment platforms to help us execute on some revenue driving initiatives or products initiatives would be something that we'd be interested in doing or working towards and we're talking with a few folks right now. Alan brings a lot of experience in managing both internal and external fulfillment capability. So he'll be really instrumental in our ability to do that and we think that'll be a big, big part us since we've started working our way through the end of this year into '19 and beyond. Helping accelerate product offerings is opening up that capacity to do that.

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Operator [36]

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The next question will come from Mark Mahaney of RBC Capital Markets.

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Zachary Schwartzman, [37]

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It's Zachary Schwartzman on for Mark. Thanks for taking our question. I had a follow up to Edward's earlier question. Can you talk more about your retail and on-demand learning so far from the marketing and spend side? In particular, does the in-store retail environment appear to be more or less competitive than initially thought? I guess said another way, do you believe you can effectively grow sales and market share here without heavily investing in trade promotion that is typically required to gain and maintain share in the traditional brick-and-mortar retail space or is it really still too early to tell?

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [38]

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Yes, I think it is still too early to tell because there're so many nuances of testing that's out of around the nuances of recipe velocity and so forth. So recipes play a big part in this, taste profile play a big part in this. There is some recipes who is standalone, will perform very well. There might be some other recipes where it requires us to explain to the customer a little bit more about that recipe offering. So early on right now we have tested doing some in-store marketing versus locations where we don't. There is obviously a benefit to doing in-store marketing. We're trying to make sure that over time we understand and quantify what that level is and then the impact on the upside is to revenue. But I think it's really early to tell at this point how that will impact the business overall. And if we have to get through some more months, have more locations, test different regions, test different taste profiles, different recipes to really get kind of an overall handle on that and not just that issue, but the overall P&L, I think it's just going to take a little bit more time.

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Operator [39]

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The next question will come from Mark May of Citi.

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Mark Alan May, Citigroup Inc, Research Division - Director and Senior Analyst [40]

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Most of mine have been covered, but maybe a question on customer profiles. When you look at your customers, are there any interesting characteristics of your best, highest repeating customers that you could possible use to, I don't know, more narrowly target your product offering or your marketing that might end up narrowing your tam, but ultimately improve the profitability of the business in terms of dinner or income level or geo-location or food taste or anything like that that kind of stands out as you study the customers?

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Timothy Bensley, Blue Apron Holdings, Inc. - CFO [41]

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Yes, Mark. I think the biggest thing there that we've seen in looking at this is more fit into lifestyle than anything. Obviously customers have different taste profiles and different recipes for different customers, obviously have different results. There is some regional bias too, but I would say the bigger thing on our core subscription business is more lifestyle of people who understand and value the proposition of choosing numerous meals on a weekly basis, taking that decision off the plate for them on a weekly basis of what's for dinner for numerous meal occasions. And they have a consistency of lifestyle where that, it can be a great fit for them and I think that has kind of been our best customers where there's kind of a consistency of lifestyle where they're able to plan ahead and order on a regular basis and know that from a week to week basis that they're going to be able to cook with our brand. I think that as we work our way forward, the interesting thing here is going back to the on demand piece is really trying to understand and identify based on all the data we've and the profiles of people that we've of people that are with us and active or people who may have left us along the way is how does this on demand piece play into this. And kind of relevant to your question is, in the future our goal is to meet customers on their terms and give our customers great products in whatever terms that they may choose to interact with our brand. And in the future it would be nice for us to be able to obviously focus our online core business acquisition marketing on the folks who are most likely to be those kind of customers that you're talking about, who are sticky and order on a regular basis versus understanding and identifying those customers who probably would rather interact with our brand more on an on demand feature. So really trying to align our spend and our voice to consumers to match more how they want to access us versus just throwing a bunch of money at the top of the funnel to see what happens. I think we need to be much more thoughtful as we work our way forward and that's part of our strategy around aligning spend to customers and how they would most likely interact with us. And that could play a part in efficiency too and to your point, could it impact the tam of our core subscription business potentially; however, we believe that it could actually expand or reach greatly beyond our core subscription business in matching the needs of customers on an on-demand basis, which we think that number of people could potentially far exceed what our core subscription business looks like today over the long term.

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Operator [42]

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With that, I'll now turn the call over Brad Dickerson for concluding remarks.

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Bradley J. Dickerson, Blue Apron Holdings, Inc. - CEO, President & Director [43]

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Thanks everyone for joining today and we look forward to continue with the dialogue going forward. Thank you and have a good day.

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Operator [44]

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The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.