Just Eat Takeaway.com N.V.
Q1 2019 Earnings Call Transcript

Published: 26 Apr 2019

[Operator:]

Good afternoon. My name is Chantal, and I will be your conference operator today. At this time, I would like to welcome everyone to the Grubhub Q1 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. Adam Patnaude, Head of Investor Relation. You may begin your conference.

[Adam Patnaude:]

Good morning, everyone. Welcome to Grubhub's first quarter 2019 earnings call. I'm Adam Patnaude, Head of Investor Relations. Joining me today to discuss Grubhub's results are our Founder and CEO, Matt Maloney and our President and CFO, Adam DeWitt. This conference call is available via webcast on the Investor Relations section of our Web site at investors.grubhub.com. In addition, we'll be referencing our press release and Q1 2019 investor presentation, both of which are available on our Web site. I'd like to take this opportunity to remind you that during this call, we will make forward-looking statements, including guidance as for our future performance. These forward-looking statements are made in reliance on the safe harbor provision of the Securities and Exchange Act of 1934 as amended, and are subject to substantial risks and uncertainties that may cause actual results to differ materially from those in these forward-looking statements. For additional information concerning factors that could affect our financial results or cause actual results to differ materially, please refer to cautionary statements included in our filings with the SEC, including the Risk Factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 28, 2019, and our quarterly reports on Form 10-Q for the quarter ended March 31, 2019 that will be filed with the SEC. Our SEC filings are available electronically on Investor website at investors.grubhub.com, or the EDGAR portion of SEC's website at www.sec.gov. Also, I'd like to remind you that during the course of this call, we will discuss non-GAAP financial measures in talking about our performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release. Finally, as a reminder, all of our key business metrics exclude transactions like LevelUp and Tapingo with Grubhub only provides technology or fulfillment services. And now, I will turn the call over to Matt Maloney, Grubhub's Founder and CEO.

[Matt Maloney:]

Thanks, Adam. Good afternoon, everyone and thanks for joining the call. We just finished up the deliciously launch of Spring Crunch bowls from Just Salad, which announced earlier this week that they are taking advantage of a unique Grubhub innovation, which allows restaurant brands to efficiently access the massive growth from our marketplace, while maintaining control of their brands and their dining relationships. This includes full services POS integration, a bespoke loyalty program and analytically driven CRM capabilities. Grubhub is the only restaurant partner in the world that offers this type of full spectrum partnership, and we are excited to help Just Salad grow their online business. During the quarter, we also added 5,000 new enterprise locations by expanding our relationships with Dunkin Brands, PizzaHut, Auntie Anne's and Jersey Mike's among others, and launching a number of new enterprise partnerships, including Smoothie King, Halal Guys, Golden Corral and Smokey Bones. 15 years ago, I founded Grubhub with one goal in mind, to help local restaurants grow their businesses profitably by making it easier for diners to order takeout online. Our 115,000 enterprise and independent restaurant partners alike understand that in order to be successful in today's world, they need a comprehensive online strategy. At Grubhub, we are uniquely positioned to help restaurants with demand generation from our massive network of over 19 million active diners, comprehensive delivery coverage in the U.S. and the best tools and technology to promote their brands and control their diner experiences. We just wrapped another outstanding quarter of execution at Grubhub. We generated 521,000 DAGs in the first quarter, up 19% year-over-year. This marks the sixth consecutive quarter of accelerating organic order growth in our business, in part driven by yet another record increase in our net active diners. Even more impressive from an execution standpoint, our profitability per order grew meaningfully during the quarter, even while we continue to invest in growth, which has been strong in all of our markets. This order growth translated to net revenue of $334 million, up 39% year-over-year and 13% from the fourth quarter. Adjusted EBITDA for the first quarter was $51 million compared to $64 million last year, while adjusted EBITDA per order was $1.09, up from $0.98 in the fourth quarter. In the fourth quarter of 2018, we announced our decision to expand our delivery coverage and increase our advertising spend given the momentum we saw earlier in 2018. We knew these investments would weigh on our profitability during the fourth quarter and to some degree throughout 2019. But we were confident it was the right decision for the business. Six months later, it's clear that these investments have resulted in strong growth momentum and clear operating leverage. During the quarter, our deliver efficiency improved in the markets we launched in 2018, helped in part by strong demand for Taco Bell in many of these markets, following the national advertising campaign we talked about last quarter. On the marketing side, we maintained a more aggressive poster and continued to bring an high quality new diners at a stable acquisition cost. We added 1.6 million active diners in the first quarter another record, and finished the quarter with 19.3 million active diners, up 28% from the prior year. As we will highlight later, these new diners have repeat rates just as high if not higher than diners we acquired a year ago. In summary, early returns on our investments have been great, high quality growth and already improving per order economics. As we mentioned in our press release, we've included some updated diner quality and cohort information in a supplemental information presentation posted to our website. Given the significant investments and associated dramatic ramp in diner growth, we thought it was a good time to update you in terms of the value of our diners. Over the years, we've noted over and over again that our disciplined approach to diner acquisition, our broad and deep restaurant network and our ever improving user experience, create incredibly sticky diner cohorts that should bring value to GrubHub for years to come. We’ve also noted more recently that because of all the improvements in our platform and marketing, we’ve been able to acquire high quality new diners in older and newer markets alike, even as we've dramatically increased marketing spend and new diner volume. In the provided cohort charts, you can see that diners that first ordered from us in the first quarter of 2015 are spending just as much if not more today than they were last year and the year before that. These charts include diner attrition. So the few diners that leave the platform are offset by diners that remain in the cohort spending more and more on GrubHub overtime. If we show the revenue GrubHub generates from these cohorts, it would be even more positive, as we all know that restaurant commission rates have risen overtime. The dynamics illustrated in the supplemental information deck validate the decision we made to invest more in growth over the last two quarters. One of the key is to building these relationships with our diners is our partnerships and deep integrations with our restaurants. Restaurants excel at making great food. GrubHub excels at helping restaurants sell more of that food online. We have built the only suite of services to help those enterprise and independent restaurants grow their online business branded and marketplace profitability and sustainably. It starts with demand generation, leveraging our 19 million active market place diners to drive growth, but that is only one part of the story. We also offer world class delivery for restaurants that don’t want to provide their own. Our over 65,000 active drivers deliver more than 200,000 orders on busy days, that’s over two orders per second. Much of our volume is still supported by restaurants that prefer to deliver their own food, but we are here to support the restaurants that chose not to. For restaurants with strong brands, we offer highly customizable on brand fully functional white label made of apps that allow restaurants to build their online presence and enrich their brand further. To help restaurant service these orders, we are able to integrate orders from both these branded apps and our market place diners directly into point of sale and kitchen display system that maximize efficiency and make processing online orders seamless with existing operations. Finally, GrubHub has launched ground breaking bespoke loyalty programs that work in-store and across both branded apps and the Grubhub market place to maximize brand building and diner impact. Allowing brands to surge rewards into our market place is a game changer for restaurants, diners and the whole industry. This magnitude of financial incentive to order and come back often is simply irreproducible on other third party or in platforms that do not partner with restaurants like we do. In addition to Just Salad, this unique loyalty functionality is currently available for other enterprise partners, like Pokeworks, Protein Bar, Yalla Mediterranean and Saloniki with many more coming down the pipe. So keep an eye out for loyalty points from your favorite brands. By partnering deeply with Grubhub, restaurants can own their online diners. Just like their in-store diners, including the transactional data all the way down to the individual diner and combine online orders with in-store diner behavior to improve their diner LTVs and their marketing ROI. Clarity on where their diners are coming from, what channels they're using, and what they are ordering is critical to brand success online. If restaurants don't own their data and don't control their branded experience, then they are merely renting customers from wherever their online orders originate. Grubhub's products empower restaurants to own their digital customers and build their online business sustainably and profitably. This is how digital partnerships should be structured. This is the future of online ordering for restaurants. As we talked about last quarter, we kicked off our co-marketing campaign with Taco Bell in February. I'm sure many of you saw the commercial Taco Bell created that aired in February and March where a diner achieved his ultimate dream, getting Taco Bell delivered. The national campaign and our support of our Yum! partnership with free delivery was a huge success. As you can tell by the strong growth in active diners during the quarter, the campaign attracted many new diners to the marketplace. Diners that place their first order with Taco Bell during the free delivery period are returning to Grubhub at the same or better rates as a typical diner, even after we ended the free delivery campaign. Some comeback and order Taco Bell again but the majority are trying other restaurants on the platform as well. Our partnership with Yum! Brands is working. Delivery unlocks more ordering occasions for Yum!'s restaurants, and we are adding diners that have yet to try online ordering, a true win-win. This initial Taco Bell campaign is just the beginning of how Yum! and Grubhub will be working together to help grow all of their brands' online business. The Grubhub and Tapingo teams are also working together to create a unified ordering experience on college campuses. The best in class mobile ordering system Tapingo developed and a seamless experience students have come to depend on will soon reside directly in the Grubhub app. We expect the technical integration to be completed before school starts this fall, and we will be migrating diners when they get back to school. Consistent with their past thinking, we find there are significant benefits to managing and investing behind a single brand. As I think about the future, I see people using their mobile devices exclusively to order takeout and more often and for more occasions. We still have a huge opportunity in front of us, and it's only getting bigger. We're focused on improving and adding to our offering in anticipation of this future, but our core mission and singular focus of connecting hungry diners with the right restaurants hasn't changed. I'd like to finish today with a big thank you to our diners. Back in October, we gave diners the ability to make a small donation each time they ordered on Grubhub by rounding up their order total for the nearest dollar. While all that change has added up and over the past seven months, our diners have donated more than $5 million to outstanding food related community focused non-profit organizations and most significantly to the No Kid Hungry campaign whose mission is to end childhood hunger in the United States. Lots of great continued momentum this quarter, and I look forward to updating you on our progress later this summer. With that, I'll turn the call over to Adam.

[Adam DeWitt:]

Thanks, Matt. Before I review the details of our strong first quarter, I wanted to discuss the supplemental information materials Matt reference. We posted a handful of slides to the investor relations website with our earnings release. Over the last few quarters, we talked about how our diner cohorts remain extremely stable and our significant investments in marketing and delivery are yielding high quality new diners at a reasonable cost. Given the ramp in our investment pace in the fourth quarter, we thought this was a good time to share additional metrics to help illustrate the stickiness of our marketplace, our ability to attract high quality diners and reinforce our decision to be more aggressive in marketing and with delivery market launches. To be clear, this is not an earnings presentation nor is it something we plan to update in subsequent quarters. But we believe it gives valuable context for our decisions over the last couple of quarters. So in my comments during the call, I'll be reinforcing the slides but I encourage everyone to spend time reviewing the presentation after the call. With that as background, I'll dive into our first quarter results. Grubhub processed 521,000 daily average Grubs in the first quarter, up 19% from the first quarter of 2018. If we adjust for some small noise from the E24 acquisition in last quarter's growth rate, we had about 150 basis points of acceleration in the first quarter, marking our sixth consecutive quarter of organic DAG growth acceleration. Active diners grew 28% year-over-year to $19.3 million in the first quarter as we added 1.6 million net active diners, marking another quarterly record of additions. To put this into perspective, we added more net diners in the first quarter of 2019 than we did in all of 2016. Certainly contributing to the growth was a successful Taco Bell national rollout promoting our partnership. This included their national TV advertising campaign and our sponsorship of free delivery, both of which ran for roughly half the quarter. We believe that in aggregate, the Taco Bell campaign contributed an incremental few hundred thousand new diners and 100 to 150 basis points of incremental DAG growth during the quarter. These new diners are high quality, returning just as frequently as newly acquired diners from other channels. And they return to TacoBell but also engage with other restaurants on the marketplace at a high rate. Even without the tailwind from the Taco Bell campaign, it was a strong quarter for growth. We believe the organic growth rate would have been at least on par with a strong fourth quarter and that net active diner adds would have been a record without the Taco Bell TV campaign and free delivery. The underlying core business is growing faster than at any point in the last two years. This exceptional underlying growth is the result of our continued strong execution, including a higher level of efficient advertising spend, accelerated high quality restaurant additions, delivery quality improvements and consistent product enhancements. Gross food sales for the first quarter were $1.5 billion, increasing 21% from the prior year with our average order size up a little over 1%. First quarter net revenues were $324 million, up 39% year-over-year. Our capture rate of 21.6% includes roughly 90 basis points from LevelUp and Tapingo's technology oriented revenues. Normalizing for LevelUp and Tapingo revenue, capture rate was up about 200 basis points year-over-year and 50 basis points sequentially, reflecting a mid shift towards more Grubhub delivery orders and also a continued small upward impact from restaurants choosing to pay more on our marketplace for more impressions. This laddered dynamic has been consistent for many years at Grubhub. Operations and support expenses grew 68% year-over-year from $96.3 million to $161.4 million in the quarter, driven by increased delivery orders and the underlying growth of our order volume. Grubhub delivery accounted for a little over 30% of our DAGs during the quarter. Revenue less operations in support per order, which we have said is a reasonable way to measure our delivery efficiency, was $3.46 per order, an improvement from $3.34 in the fourth quarter. We are generating more orders in our recently launched delivery markets, which is improving driver efficiency, resulting in a lower per order delivery cost just as we laid out on last quarter’s call. For clarity, our operations and support line contains virtually all of the variable costs associated with orders that are not already netted out of revenue, including 100% of driver pay, driver subsidies, background checks, driver gear, credit card processing costs and customer care costs. Our investment in delivery is working, generating growth in those new markets and we are already seeing operating leverage as we scale. Sales and marketing expenses were $78.5 million in the first quarter, a 61% increase compared to the same quarter last year, and up 12% sequentially from the fourth quarter. We said we were going to maintain an aggressive posture with marketing, and the sequential increase is consistent with past seasonal patterning for the first quarter, which is typically strong for new diner engagement. During the quarter, we increased advertising spend across all marketing channels and acquired a record number of quality new diners. Our, I want it all TV creative has been very successful. In the supplement slides, we show the trend of our cost per new diner over the last three years. Even though we spend 3 times more in advertising in the first quarter of 2019 than we did in the first quarter of 2016, our cost per new diner is only up approximately 10% over those three years. We’re showing the CPA trend line as a trailing fourth quarter’s average because of seasonality. But as a data point, even if you exclude the new diner impact of the Taco Bell national advertising campaign, effectively normalizing for the impact of that campaign, our cost per new diner in the first quarter was unchanged from the fourth quarter. Our disciplined approach to diner acquisition is a key driver of this stable cohort behavior you see in the supplemental slides, which Matt discussed earlier. It also supports the improving retention rates you see for both brand new and somewhat new diners also in those slides. Finding the right diners and bringing them to a market place with a constantly improving restaurant supply drives higher diner retention, which you can see both one month into a Grubhub diner’s journey and one year after the first order. We show this dynamic for a number of different cohorts and markets to show that this is a broad phenomenon on GrubHub, if not limited to one market or one vintage of diners. Our investment in advertising is working. Technology expenses excluding amortization of web development were $27 million for the quarter, increasing 57% from the first quarter of 2018. A majority of this growth is related to the engineers we acquired with LevelUp and Tapingo last year. As Matt noted, because of the products and engineers that came with LevelUp and Tapingo, we are seeing a lot of traction in our enterprise restaurant relationships. We’re setting a standard and helping restaurant brands grow their online business, whether it’s full end-to-end partnerships like Just Salad or expansions of existing relationships with partners like Subway, Auntie Anne's and White Castle. We’re having great conversations with brands, both big and small. We believe this will be a meaningful growth catalyst for us over the coming years, and we’ll continue to invest in product development and internal infrastructure to support future growth of enterprise partnerships. Depreciation and amortization was $25.1 million for the quarter, up 20% year-over-year and 4% sequentially. This concludes the full quarter of amortization related to the Tapingo acquisition we closed in the fourth quarter. G&A costs were $22.8 million, up 29% from last year and down $5 million from the fourth quarter. As a reminder, there were $7 million of one-time expenses last quarter related to the acquisitions of Tapingo and LevelUp. GAAP net income was $6.9 million in the first quarter compared to the prior year of $30.8 million. Net income per fully diluted common share was $0.07 and approximately $92.9 million weighted average diluted shares. Our go forward tax rate will be approximately 31% before any additional impact from stock based comp, which is very difficult to forecast. Non-GAAP net income was $27.9 million or $0.30 per fully diluted common share compared to the prior year $47.2 million or $0.52 per fully diluted common share. Adjusted EBITDA for the first quarter was $50.9 million compared to $64.1 million in the same quarter the prior year and up 21% from the fourth quarter. Adjusted EBITDA per order, which we view as a good indicator of our profitability was $1.9 in the first quarter compared to $0.98 in the fourth quarter. The $0.11 sequential increase is mostly a result of the improving delivery efficiency we have discussed. We ended the quarter with approximately $200 million in cash and equivalents, $340 million in debt and $200 million in committed unused capacity on our credit line. Now, some thoughts on our guidance. We currently expect second quarter revenue to be in the range of $305 million to $325 million, and are reiterating our full year guidance range of $1.315 billion to $1.415 billion. We always have the sequential decline in order volume from the first quarter to second quarter. But it's worth calling out that the usual seasonal sequential decline is likely to be a few hundred basis points more than typical, because of the Taco Bell national advertising campaign benefit in the first quarter. And the fact that Easter fell entirely in the second quarter of this year. We expect second quarter adjusted EBITDA to be in the range of $49 million to $59 million. While we had some EBITDA outperformance in the first quarter, as I noted earlier, we are excited about the traction we are seeing in the enterprise space and investing behind product development and infrastructure in that channel throughout the remainder of 2019 that will set us up for future growth. This will likely offset the EBITDA outperformance in the first quarter. As a result, we are maintaining our full year EBITDA guidance range of $235 million to $265 million. We remain on the path for significant improvement in EBITDA for orders throughout 2019 with a solid first step in the first quarter. But importantly, we can achieve this leverage while also investing for growth at the same time. We are laser focused on capturing as much as the offline takeout market that will move online over the coming years, and doing it in a long-term sustainable way for restaurant partners, diners and drivers. With that, Matt and I will take your questions. Operator, please open up the lines.

[Operator:]

[Operator Instructions] Your first question comes from Jason Helfstein with Oppenheimer. Your line is open.

[Jason Helfstein:]

I think every earnings season now, it seems like we're seeing another data point about the importance of delivery to last ride restaurant. I think it was either this morning or yesterday kind of 100% growth in digital. Can you just talk about the progress you're making with the conversation with chains, there was obviously the headline about McDonald's potentially being non-exclusive with their using quarter. With the conversations you're having about how the software platform works, exclusivity versus non-exclusivity and then the types of economics that are being talked about, given that. Are the chains still looking for the lowest priced take rate, and what's your ability to negotiate? Thanks.

[Matt Maloney:]

Jason, this is Matt. Thanks for asking that question actually. I have a lot to say about our relationships with chains, the conversations, the rates and the current forms of exclusivity that's going around. So this maybe one of the longer answers but I think it's going to be really interesting. So the bottom-line, as I said in my comments earlier. The products and the platforms that we have produced are irreproducible currently given the lack of partnerships and lots of our competitors. We're providing the products that restaurants want. And I think I said in the few earnings calls that management teams are between a rock and a hard place with trying to figure out digital profitability overtime, given the fact that they don't have any of the information on the customers that are placing those orders, so as you mentioned, the 100% digital growth. As soon as they change platforms, they are up a creek in terms of China reproduce that growth. And so it really puts -- it puts management teams at a really difficult spot. And so we have changed the game and it was a combination of the level up, technology and products, the Tapingo acquisition, the teams and holding it all into our delivery capabilities and our marketplace. But we're providing the total package. And I think if you talk to restaurant management teams right now they will validate that statement. I'm extremely confident, because I feel that we're winning across the board when it comes to chain and enterprise conversations. No one else has this combination of the marketplace growth, delivery, delivery as a service, loyalty programs, including where we share customer data with POS integration. This is exactly what they want. And like I said, we're the only ones offering it. While in terms of fees, while major brands do have more leverage than local restaurants, we are not as impacted in the pricing conversation, because we actually bring real value and we're helping brands build a long term and profitable business. So we're paid fairly for our services, which then allows us to achieve long term sustainable economics, which I think you also know is rather unique in our industry. So you think about the exclusivity components of some of these relationships. Exclusivity for all of our competition is simply economically motivated. Zero or near zero fees for the brand to forgo all orders from all other platforms. This just isn't sustainable even with billions of dollars in private venture money flowing in if this is not a long term business. We also currently have exclusive partnerships but because we have the exceptional tools that help our restaurants build a sustainable and profitable online business. So restaurants choose to work only with us not because of an economic incentive, but rather a practical one, because they want to own their customers and build a long term asset. This is extremely rational. Overtime, I don't think exclusivity will be the norm as restaurants will always want to increase total food sales. And I think they should be able to access diners across all platforms. But you have to remember, the brands will always prefer to spend their marketing dollars, building a diner base on platforms that share their customer data with them. And that's at least what we've seen to-date.

[Operator:]

Your next question comes from Tom Champion with Cowen. Your line is open.

[Tom Champion:]

Adam, on EBITDA, I guess it's the enterprise investment, which accounts for why EBITDA guidance is remaining unchanged for '19. Last quarter, you provided some thoughts on a jumping off point for '20. And just curious if those comments remain in place? And then Matt just curious if you could talk a little bit more about the partnership with Yum! and maybe what we can expect through the balance of the year. Curious if the Taco Bell app and KFC app are close to going live and if the $5 million in free delivery was completed in 1Q? Thank you.

[Adam DeWitt:]

So in terms of the EBITDA, the jumping off point where we think we’re going to end up at the end of the year. We still feel really good about the comments that we made last quarter and the progress we talked about getting back to where we were in '18 and it’s really unaffected. In terms of the investment, you hit on it, it’s really about -- and it really builds on what Matt was talking about in terms of the products, the infrastructure to support future growth in that in the enterprise space. And so we’re really excited about it. It’s just a couple of million bucks but that’s how you get to the math. If you do look at -- when you do your modeling and you will get to a place where that EBITDA per order in the fourth quarter is right on track to where we said. And I think that’s we try to emphasize that in the comments.

[Matt Maloney:]

For the Yum! Partnership, both the KFC -- so we’re working closely with KFC, I’ll start there to develop their white label app. I’ve seen it. We’re actually building it as part of the product sweet we’re doing and it looks amazing. I'm really excited about the launch. There’s really nothing on our end that’s preventing the KFC launch, whether it’s the app itself or the broader campaign. We currently have more than 3,000 KFCs in our platform that are currently receiving orders from Grubhub. We know the campaign is coming. We really look forward to continuing to support KFC through our market place, and then powering the upcoming that I mentioned it’s incredibly white label app when it’s released. But it’s going to be KFC that decides when that goes live based on their calendar. And so we’re just kind of waiting to support that. Similar to Taco Bell, obviously, fully support of their launch of national campaign. They are choosing to build their own app, which is buying with us. It’s running on our rails. Like we said before, we are indifferent if the order comes across our market place, or their branded apps. That’s probably the uniqueness of fully aligning with the partner. Yum! was the first partnership that we built in the new frame of supporting restaurants, enterprise brands with the sustainable profitable growth. And then actually Pizza Hut also is really excited about our partnership based on early results. And I know we have played down expectations to-date, but we are all working really hard on expanding the pilot and we will have more information when it’s nailed down. But I think that’s coming sooner rather than later.

[Operator:]

Your next question comes from Ron Josey with JMP Securities. Your line is open.

[Ron Josey:]

I think Matt you said recently you’re willing to be and you definitely are a lot more aggressive, extremely aggressive when it comes investing in the future. And we saw that with sales and marketing cost included with active diners. But when I hear, Adam, you talk about the CPA up only 10% over the last several years. Why not spend more? Could you spend more? Would that be efficient based on your LTM calculations? I guess is one question. And then maybe following up on that last question just with Pizza Hut, and Matt you mentioned Dunkin brands, extending the partnership. Last quarter, you talked about how quickly it was implemented. Just give some more insights on how that's going with Dunkin. And of course with pilot on pizza coming soon, that would be exciting to hear too? Thank you.

[Adam DeWitt:]

Ron, I'm actually going to take the CPA question. It's a good question. When we show the CPA, you're looking at an average. And our approach to advertising and how we think about spending hasn't changed in a long time. And that is we're spending to the point of inefficiency. And so what we're looking for is you don't want to be spending more on that last incremental diner than there were. And so what you're seeing is really the output of what's happening across all of our channels, paid, unpaid everything in terms of the average, there's no peg there. What I'll tell you is from an LTV perspective, the diners are worth a lot more than the CPA that you're seeing there. And so we would be comfortable if it was up it's just what we're not comfortable doing is spending more on the last incremental diner than their worth. Does that make sense?

[Ron Josey:]

It does. I mean, how do you reconcile that -- just one last follow-up with perhaps your competitors that are stemming more, and maybe taking mind share there? Thanks.

[Adam DeWitt:]

Well, I can't speak to their economics. All I can point you to is our numbers, which show you that we've been able to acquire a lot more diners, spending a lot more money and maintaining the efficiency but not only that you're seeing the diners improving quality overtime. I hope -- I don't know if you’ve got a chance to meet through the supplemental deck. But the repeat race on our January and February 2019 diners are higher across all of our markets than they were in 2018 or 2017. So the quality is going up, we're spending more money and the cost isn’t increasing. So the formula is working for us. The underlying organic growth in our business, I think, Matt, may have said this in his comments, I'm not sure. But the underlying growth in our business is stronger now than it has any point in the last few years. And so we're happy. I mean, we've been able to deploy more. We just ramped up 50%, 60% from the third quarter to the fourth quarter and first quarter.

[Matt Maloney:]

In terms of the enterprise pilot and expansions, like I said earlier, winning across the board is the takeaway here. Dunkin is extremely happy excited even, I don't know if you've had a chance to look at Dunkin's Q&A from the last earnings call. But they had some extremely nice things to say about us. And we are aggressively expanding that pilot. I think we don't have any news to share right now. Other than I'd say continue on the same trajectory as when we last talked. Similar to my answer to Tom earlier is that a lot of these announcements are out of our hands. I would love to announce the multiple deals that I'm aware are already signed but we can't, because the brands would prefer to announce when they are prepared to announce, which we are respectful of being a good partner and wanting to help them build a long-term digital business. And in fact, many of these cases having these restaurants build their own technology similar to Taco Bell on our infrastructure, leveraging our loyalty platform even when they are actively integrated with other marketplaces. And so if you think about the interplay of the products we have brought to the market and the rest of the ecosystem, I think you can get pretty creative in how it all works together. So I think that the enterprise brands we're talking to, like I said, are really excited about what we're bringing there. No one else is sharing customer data, because of the way that we're partnering we are able to. And that is a dramatic, like I said in the comments, game changer for the industry. And I think it's going to be interesting to see how the brands respond to that offering.

[Operator:]

Your next question comes from Jeremy Scott with Mizuho. Your line is open.

[Jeremy Scott:]

Just on the on the enterprise model, you talked about the need for cut for restaurants own the customer data, not just read. It's obviously something that we're hearing more and more from operators, especially now with that rush of investment. So with Just Salad, can you share some insight on the process of conversion? And then just more generally on the on the enterprise model, it seems like from our conversations that operators are scrambling to capture every incremental dollar and delivery for the moment, a lot of that subsidized by private capital, as you mentioned. So how do you nail them down to a smarter system in that environment?

[Matt Maloney:]

Are you asking how do you nail down the enterprise brands, the restaurants to a smarter system?

[Jeremy Scott:]

Yes, how would you convert a restaurant that is using multiple different systems and capturing every delivery dollar to a smarter more exclusive system with you?

[Matt Maloney:]

I mean, honestly, that's where we came up with the own versus rent paradigm, and it is resonating with restaurant management teams. I think we gave a talk recently at a conference and the whole point was buy versus rent. And I think we put up a slide, which showed on a similarly sized enterprise relationship over the course of a year, brands such as Taco Bell, which is partner -- integrated deeply with us, we share the data and a brand on a competitive third party delivery platform that's exclusively on that platform it would be roughly the same size. If you hypothetically put them up together, you have this call it the same amount of volume. You're basically paying not exactly the same book but in the same ballpark at the -- generating generally the same revenue for the restaurants, generally the same profitability for the restaurants. And the bottom line of this chart is at the end of the year, what does that restaurant have? And on the Taco Bell Grub side, Taco Bell has a million whatever, I'm making that number up, plus customers that they can then enter in their loyalty program, remarket to, follow them as they come back to the stores really make their future marketing far more effective. And there's a big goose egg zero on the bottom end side of that column, because the brains don't get anything, they're simply renting. And so the concept of publicly stating that you're exclusively renting is just dumb. And so that's how we're converting these enterprise brands to come across on our platform, because we can say digital is a huge part of your digital is a huge part of your business going forward, we all know this. You don’t have a realistic way to have a long term profitable business when third party platforms are pulling 30% off of every order and perpetuity. So why don’t we help you and provide you a transaction and provide you support for a branded market place and provide you loyalty tools, which by the way you’re paying for anyway. That all integrates with a growth platform so that when you want to surge growth you may and then you can pull that in and execute your own marketing strategy with your diners. And you can have a different economic situation that if you are fully reliant on a third party platform. And that argument is a slam dunk every single time you have it. So really, it’s a matter of how quickly can restaurants make decisions, how quickly can we integrate I think you saw with the Dunkin. Dunkin is clearly a high priority partner of ours. So we -- it was all hands on deck and we were able to achieve a six week integration to get that done. And then the next question is how deeply are these restaurants willing to integrate. KFC is all in, everything we offer they said yes, that is a very intelligent decision for them and we’re going to do everything we can to show incredible success for that brand. Taco Bell another deep-deep partnership and Taco Bell wants to build their own app, which is absolutely fine. We support that decision. We support them as aggressively as we can. They don’t have their app out yet, which I think if we did it, we might have been able to do that for them. But these are choices that they can chose how deeply to integrate and how much to leverage our system.

[Jeremy Scott:]

And maybe just a follow up on that, it seems like some of the competitive activity you’re seeing in the market place even if it’s not sustainable, it runs the risk of impairing the value of the delivery service, both for the restaurant and the customer. In other words, it’s conditioning customers to expect these or operators to expect those deliveries to be subsidized. I think the fear is that that’s more permanent than temporary. So I guess when you look out a couple of years, you imagine that the industry evolves into this razor blade model where the delivery services themselves are lost figures and the services that you guys are arguably have a lead on this year on the loyalty of the white label apps that’s the razor blade that you can really capture the margin?

[Adam DeWitt:]

I don’t know if it’s the razor blade is the right analogy. But I think what Matt’s saying is we’re building, first of all, the interesting thing about our business as a balanced marketplace right. There’s a balance of larger brands and we just spend a lot of time talking about why we’re valuable to them and how we can build a real valuable partnership with them that generate shareholder value. But we also have 70,000 independent restaurants that we work with as well. And so you need to have a very broad marketplace and generating revenue from different places to create long term shareholder value. I mean in terms of what happens overtime, it’s not as Matt said, it's not this concept -- likely to be this concept of hard exclusivity. But partners will want to work with folks and do marketing campaigns, loyalty programs et cetera that drive more volume on platforms that they're tightly integrated with. So, on the enterprise side of the house, that’s where we are. And then on -- but we’re also very highly focused on building out the independent side of the house as well where we’re providing a lot of orders and sustain demand gen for those partners.

[Operator:]

Your next question comes from Brian Nowak with Morgan Stanley. Your line is open.

[Brian Nowak:]

Just to go back to the comments you made on last quarter's call. I imagine there's a lot of attention to the 20-20 hop off and that $40 million to $50 million of EBITDA that you mentioned last quarter. But you said you believe that base EBITDA is where we continue to grow and should be closer to that figure. Is that still the way you're thinking about 2020? Or given the opportunity to invest to grow to be more associated as you're going to reinvest in marketing and continue to realize your overall opportunity? And then the second question is on going back to Ron's question around faster growth. How do you think about adjusting the consumer delivery fee to potentially bring more people into the ecosystem to grow faster?

[Adam DeWitt:]

I'll take the EBITDA comments and I'll let Matt talk about the diner facing pricing thing. So I think the way that we talked about it last quarter and the way that we're thinking that it hasn't changed, which is we're building this path back to a similar EBITDA per order. And you can put that on top of whatever you have in your estimates for 2019 growth. And that's where we build from an exit rate but that hasn't changed and that's what I'm trying to -- I was trying to get across in the prepared remarks, and then I think with the earlier question. But we think we're very much on track for that EBITDA per order that you would apply to whatever you're seeing in the fourth quarter in terms of plans right now. In terms of investments and will we make them. We're telling you what we know right now and I think, we've always said in my answer to Ron earlier. We think about investing in marketing and acquiring diners based on the value that we're getting. I think what we're -- our current view is what we shared, which is we expect to be in that place exiting 2019 and heading into next year. And to be clear those -- we're going to see -- and the reason that we get there from $1.9 to that mid 50s number is really about efficiency, and continuing grow into these markets where we are. As you saw, we took a really good significant step up from the fourth quarter to the first quarter. And we think we're going to continue to make some inroads to the rest of the year there. And we also -- last year, we acquired a lot of engineering and product talent. And so we're growing into our skin a little bit, if you will, throughout the remainder of 2019 as well. But we feel really good about that.

[Matt Maloney:]

And Brian in terms of fees, I just want to point out first, because I don't think it's well-known. But we have consistently the lowest consumer prices and fees, transactional fees because of our strategy of partnering with the restaurants, because that allows the restaurants to subsidize a majority -- maybe not a majority, a large portion of the transactional fees by having over 70,000 some-odd independent restaurants. All of our relationships right now are partnered the restaurants are paying us a commission. That's obviously not the case across the board. And it's been documented actually pretty well in analyst reports, as well as in the press of seeing diner facing fees by most if not all of our competition. It gets for us to decide but we believe very strongly that in the long-term consumers really do care about transactional fees. I think Jeremy or Ron who brought up huge subsidization on the diner side, and I think it's -- I think we saw that maybe a year or two ago. I think now what you're seeing is increasing fleecing customers through egregious fees that are frequently hidden in a taxes and fees section where the diners don't even know what's hitting them until they get their credit card statements within a month if they even check. So you can look on Twitter if you want to see some pissed off consumers figuring out how much they paid for their delivery. But I continue to believe strongly that it's important that you have the lowest transactional fees, because as many of you know that's on one-on-one. So in terms of how you display the fees, this comes back to our AV testing focus. We're always AV testing on all of our consumer facing platforms, includes not just the size of the font and locations of the buttons but the size of the images, the product experience itself and including the different fee levels, the amount of fees and the way that we display those fees. And what we're measuring in all of these cases is how it affects diner behavior and specifically lifetime value. So just so I'm clear, we always make sure that we're communicating to the diner exactly what they're paying for in the clearest way possible. We are not hiding fees. We don't want to do that. We want to be transparent with our diners. And then whenever we do make changes to our platform and this includes to our fee structures, we know from our testing that it will result in greater value to shareholders.

[Operator:]

Your next question comes from Mark May with Citi. Your line is open.

[Mark May:]

Maybe the first one might be for Matt. I saw your comments earlier around exclusivity and sharing of partner data and being much more of a partner and rent versus owning comment really interesting. Just curious if other marketplaces continue to not share customer data and not pursue other partner friendly practices like you guys are now. Do you think we could actually see a change in the trend that you highlighted earlier where restaurants are turning away from exclusive arrangements, meaning with Grubhub -- if Grubhub remains the only one allowing this owning and renting, because you actually see more not less exclusives or exclusive light deals? And maybe more of a question for Adam with the KFC national launch likely happening at some point this year, I'm guessing sounds like based on your comments earlier, although outside your control. Just want to understand if we should expect the similar delivery promotion like you had with Taco Bell that was obviously help diner acquisition presumably, but also have a little bit of added near term costs associated with it. Thanks.

[Adam DeWitt:]

So I'll jump in on the KFC question real quick and I'll let Matt talk a little bit about the exclusivity. So I think it was in Matt's prepared remarks. We're certainly working through with KFC the timing of the launch on their branded app and the co-marketing campaign and still working through the details. It may or may not have a component of free delivery in it. We just have to work through all the details and the timing. In general, we're really excited about what we're seeing from the KFC customers at this point, similar to what we saw from Taco Bell even prior to the Taco Bell campaign. It’s a really powerful tool to help acquire new diners on the platform who are extremely loyal, but also order from loyal to the platform and loyal to KFC. But also see that there’s other restaurants on Grubhub that they can order from as well and take advantage of it. So we’re certainly excited about figuring out the timing and the details of a more aggressive launch with KFC.

[Matt Maloney:]

Mike, it’s actually a great question, and I'm happy to share my thoughts on that. I think it’s going to be hard for third party platforms that have not built the infrastructure that we have built, including the ability to support. Whereas applications, POS integration, loyalty programs to those restaurants, I think it's going to very hard to other platforms to share the data, because frankly if you’re in a rental situation and you share the data, there’s no future value for you in that partnership and you will be discarded for the commodity that you are. So what I think -- the other thing about exclusivity and it sounds, exclusivity sounds great. But I'm probably not most, and I'm going to say a lot of our competition are non-contracted by default. So Taco Bell is exclusive to us, but if you go on Postmates or DoorDash, you will see a lot of Taco Bells, and it’s not because the franchisees have signed up, it's because they are listed without their consent and the carriers walk in and swipe the card. So exclusivity for us really isn’t that big of a deal, because we know that even if we get these exclusive relationships, they’re still going to be mimicked on a non-contracted basis, which as we all know from the last earnings call is an additional $5 to $10, which you’re either going to get by placing the consumer or stealing from your drivers as we’re seeing our competition stealing tips from their drivers. And I think there is a recent lawsuit about it, which is egregious, repulsive, but I won’t go that way but you see. So we’re okay without exclusivity frankly, because of this. The way I see the model working in the future is, let’s just say KFC, because they’re completely partnered. I'm fine if KFC wants to spend money on other platforms, because if you think about it from their perspective they get more value out of our platform than anyone else. So if you are on their marketing team, you’re thinking if I have a million dollars of spend, I'm going to spend as much as possible on Grub, because they get the most value out of that. And if they still have more money to spend and they can’t spend enough -- all of it on our platform, then they will surge into another platform, which has another pool of diners and maybe they can find some advantage and even thought its short term but that's their choice. But I see it as if we can be the most integrated, the most partnered, the most supportive and the most value, we are going to get all the money from their marketing budgets that we can take for the demand gen we can generate. And then if we are not able to support them for whatever remaining dollars they have to spend, it's a free market they can spend that wherever they want. It's funny because -- and I don't know if Just Salad fits into this category or not. But we have a lot of restaurants that are choosing to go exclusive with us, not because we are asking them to or sensing them to, but because they want their customer data and I think that's extremely reasonable. So they don't want to pay other platforms to bring them diners that they can't track or even know who they are or bridge to their in-store purchases. So it's almost like we're not asking for it, but they want the data so they want to be exclusive on us. And that's where I see some of this exclusivity playing out in the future.

[Operator:]

Your next question comes from Heath Terry with Goldman Sachs. Your line is open.

[Heath Terry:]

Maybe to spin us in a slightly different direction given some of the other things going on in your business. As you guys have integrated some of the acquisitions and particularly the services that those acquisitions offer that maybe go beyond, and really thinking about the pick-up options that you are seeing or beginning to rollout point of sale integration. Have you seen any change in the mix of business from a day part perspective from a profile of the type of consumers that you have got? Just really trying to get a sense of what some of these newer -- some of the newer functionality that restaurants are getting access to on the platform potentially means for broader growth in GFS?

[Adam DeWitt:]

So Heath, I'll take the tactical part of the question and then I'll let Matt talk a little bit more about, because I think there's some exciting things that we are doing from a product perspective. I think a lot of the stuff that we were talking about, both from an enterprise perspective and I think Matt will give some more details in the pick-up product. It's really early to say that it's having a transformational impact on our 19 million diners. We're really excited about the things that we do. You don't see it in our numbers yet, but I think that that's actually a big positive, because I think as you're hinting at it's a very large opportunity. But I think Matt can dive into some of the exciting things that we are doing with whether working on specifically related to the Tapingo acquisition and some products that we are working on that real address that pick-up opportunity.

[Matt Maloney:]

Heath, I definitely want to echo what Adam is saying and that it's early days. I think the offerings we're bringing to market are extremely unique, including the Tapingo products. We are able to offer the entire spectrum of digital technology to restaurant brands, whether they are enterprise or independent from the consumer-facing app all the way to the kiosk at the restaurant with optical payment for a walk-in consumer fully integrated with loyalty. I haven't been saying a lot about pick-up today and it's just an accidental omission, because pick-up clearly is extremely important when you're talking about a brand like Dunkin, and the effectiveness of a loyalty program. You can't just do loyalty for consumers that are ordering delivery through a third-party platform. Loyalty is holistic and inclusive and it is branded applications for delivery or pick-up, third-party platforms for delivery or pick-up, or walk-in for pick-up. And our ordering technology bridges the entire spectrum and that's part of the reason this is so exciting for them. So to your question, are you seeing different segments or use cases, not really, probably because it's really early days. I know that in markets, in university markets where Tapingo has been fully rolled out and you see extremely high velocity pick-up orders you do see patterns changing, because students know they can order their pick-up. And it's going to take 13 minutes and so they can hit that order of 13 minutes before class is out and they walk over and grab it. You see that the peak periods even out for the restaurant operators, which is a really nice. You see the lines get a lot shorter so they see more volume, you don't have people walk away when the lines are too long. So I think we will see consumer ordering habits changing with the ubiquitous introduction of technology across pick-up and delivery. We haven't seen it yet, but it's coming.

[Adam DeWitt:]

And Heath, just to clarify, I was answering the question from a Grubhub marketplace perspective. But helpful to point out that both -- between LevelUp and Tapingo, there is hundreds and thousands of pick-up orders a day that are being transacted through there. And they have the dynamics that Matt talked about, obviously, different day parts and very different use cases. So that's why we're so excited about expanding those products and bring them to the Grubhub marketplace as well.

[Operator:]

This concludes today's conference call. You may now disconnect.