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Q4 2020 Earnings Call Transcript

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  • Operator:
    Good afternoon, everyone. I would like to welcome all of you to the Waitr Holdings Inc. Fourth Quarter 2020 Conference Call. With us today are Waitr's Chief Executive Officer, Carl Grimstad; and Chief Financial Officer, Leo Bogdanov. By now you should have access to our earnings press release, if not, it may be found at sec.gov or on our Investor Relations website at investors.waitrapp.com. Before I turn the call over to management, I would like to remind you at that certain statements and projections in this call about our future business and financial results constitute forward-looking statements. These statements are based on management’s current business and market expectations. Our actual results could differ materially from those projected in the forward-looking statements. Please see the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements.
  • Carl Grimstad:
    Thank you. Hello, everyone, and thank you for joining our call today. We are pleased to report another quarter of profitability and positive operating cash flow marking 11 straight months of continued profitability in our business. Despite impacts from adverse weather-related events during the fourth quarter of 2020 and early 2021, along with the ongoing pandemic, we further solidified the sustainability of our business model and unit economics. Our business reflects the implementation of several fundamental strategic initiatives that stabilized the foundation of the company, so that we could position it for future growth. Our efforts during 2020 included the expansion into new delivery verticals such as alcohol and grocery and the continued diversification of our product offering beyond restaurant food delivery with the launch of our tableside service technology. As the pandemic continues to impact the restaurant and hospitality sector, we remain steadfast in helping our restaurant partners navigate through these challenging times. In the first quarter of 2021, we completed the integration with several third-party platforms. We also continued to partner with major national chains and virtual ghost kitchens as the restaurant industry continues to adapt to the new environment in the midst of the pandemic. In the first quarter of 2021, we got our first set of virtual kitchens live on our platform. In 2021, we look to build on our success from 2020 by focusing on profitable growth, both organically and through strategic acquisitions to bolster our delivery footprint and expansion into other delivery verticals while further refining our integrated payments platform. We have recently agreed to pursue a partnership with Flow Payments to create a compliant marketplace, delivery and payment solution for dispensaries selling cannabis. We are excited for this new venture into uncharted waters as the regulatory framework around the cannabis industry continues to evolve.
  • Leo Bogdanov:
    Thank you, Carl. I'd like to now comment on our fourth quarter and annual 2020 financial results. Revenue for the fourth quarter of 2020 was $46.8 million compared to $43.1 million in the fourth quarter of 2019. Annual revenue for 2020 was $204.3 million compared to $191.7 million in 2019. Net income for the fourth quarter was $2.6 million, or $0.02 per diluted share compared to a loss of $21.6 million, or $0.28 per diluted share of the fourth quarter of last year. Net income for the year ended December 31, 2020 was $15.8 million, or $0.15 per diluted share compared to a loss of $291.3 million, or a loss of $4 per diluted share at year ended December 31, 2019, an increase of $307.1 million. Net loss for the year ended December 31, 2019 grew to goodwill and intangible asset impairment charges of $191.2 million. Adjusted EBITDA for the fourth quarter was $9.9 million compared to a loss of $14.4 million for the fourth quarter of 2019, an increase of $24.3 million. Adjusted EBITDA for 2020 was $43.4 million compared to a loss of $54.8 million in 2019, an increase of $98.2 million, or 179%. This change reflects the implementation of a myriad of initiatives around service and profitability. As on December 31, 2020, we had cash on hand of $84.7 million, an increase of $7.6 million from September 30, 2020, driven primarily by positive operating cash flows. Cash on hand as of January 31, 2021 was $88.5 million. Total outstanding long-term debt was $99.1 million consisting primarily of $49.4 million of term loans, $49.5 million of convertible notes. That concludes the recap of our fourth quarter and annual financial results. We will now go into a short Q&A session.
  • Operator:
    And our first question is from Dan Kurnos with The Benchmark Company. Please proceed.
  • Dan Kurnos:
    Great. Thanks. Good afternoon. Carl, just maybe first on the weather events, is there any way to size the impact in Q4 and expected in Q1 and maybe how Q1 looks relative to Q4 and kind of just parse out underlying what you think the underlying organic trends are between Q3 and Q4 and then kind of as we're looking into Q1 and then I have a follow-up?
  • Carl Grimstad:
    Yes. So, Dan, the effects in both Q4 and into Q1 vary from market-to-market. In some of our markets, it is - we're still not back at full capacity since the hurricane season. And ultimately, we do see these markets rebound. There are - I would hope anomalies, but ultimately it affects daily order flow, right, because - and most recently when people don't have water and electricity, it's very difficult to supply or service. Restaurants can't prepare food and we can't deliver it. And I think in the fourth quarter, you saw the impact of that, along with just seasonal challenges in and around holiday periods.
  • Dan Kurnos:
    Yes. I'm just curious if you take weather out of the equation for a second, if you could just give us a sense of kind of what you're seeing in terms of underlying penetration order frequency just any kind of the KPIs that you normally give around sort of the health of the underlying business ex-weather?
  • Carl Grimstad:
    Yes. So ex-weather, I think, if we think about 2020 first quarter, second quarter was an anomaly, third quarter continued to benefit from subsidies and unemployment benefits. Fourth quarter, I think, was fairly normal sans the weather-related dynamic. I think first quarter probably looks a lot like fourth quarter given again the unforeseen weather-related challenges. I think that the business is healthy, the diner universe stayed fairly constant, I think that we probably can look forward to this new enhanced subsidy package, along with the unemployment - extended unemployment benefits, probably will continue to give us some wind in the sales going into the rest of at least the first-half of this year.
  • Dan Kurnos:
    Perfect. And then obviously the huge announcement on the cannabis side of the equation. Love to just kind of get your sense on how much do you think - how quickly that scales? How much it could contribute unit economics? How this kind of rolls out? Just anything around that announcement would be really helpful?
  • Carl Grimstad:
    Right. So obviously, the - both the opportunity and the biggest challenges in and around navigating state-to-state and at this point, obviously, federal laws and regulations, right? For a long time at least on the payment side, payments or what you say accepting payments for dispensaries has been a big challenge. The second part of it being in this last-mile delivery is another big challenge for, let's just call it a cannabis retailer. So it's super early days. We're in the process of really putting forth our blueprint for how we're going to operate. We partnered with a really great established company in Flow Payments. And I think a lot of great things to come here. I talk often about diversifying the delivery platform. Alcohol is great, grocery is great. I don’t think there is a better vertical from a growth and a margin expectation than the cannabis industry. And because of all the regulatory challenges in and around it, I think it will give us - we're a small company. I think we can be very nimble. We have a ton of experience in the payment side of it also, and creating this solution, which potentially could be partnered with various different software companies that actually help dispensaries run their businesses, as well as stay compliant with all the many state regulations that they have to adhere to. I think it's probably one of the most exciting things that we've run across and it will be a focus for us.
  • Dan Kurnos:
    So not to pin you down, but any way to kind of think about what we should expect this year from a top line or bottom line perspective from that initiative?
  • Carl Grimstad:
    Too early.
  • Dan Kurnos:
    Fair enough. I appreciate all the color.
  • Operator:
    And our next question is from Jeff Van Sinderen with B. Riley & Co.
  • Jeff Van Sinderen:
    Hi, everyone. Carl, I wondered if you could just talk a little bit more about how you're thinking about reopening of the restaurant industry. Obviously, there's been a lot of change, a lot of restaurants paused, and just wondering how you think about that for both your delivery business and for some of your new POS systems given that you've ramped dine-in and so forth?
  • Carl Grimstad:
    Well, Jeff, we've said a number of times where we operate our footprint Southeast Texas, Florida, a lot different environment than L.A., Chicago, New York, right? Over the course of the last year, most of our markets have been predominantly open. And a lot of times when I'm asked about this gigantic top line growth that some of our national competitors have been enjoying, it's almost like we've been in a different world. I think, I revert back to my - the challenge of people being out of work and unemployed more so than the dynamic of restaurants "reopening” or having failed because they've been challenged during the pandemic. I think that's more of a challenge for us, people out of work and for at least the six months kind of left with - without the big subsidy package. So I think the mitigating of the COVID scenario that will open up restaurants in the big cities is not as much of a dynamic for us. I think that it's - it probably is a neutral from where we are because it’ll be balanced by a subsidy package and hopefully a lot more people getting back to work.
  • Jeff Van Sinderen:
    Okay. So we think about that as sort of a neutral at this point, we think about some incremental contribution from the dine-in apps that you have missed out?
  • Carl Grimstad:
    Each initial contribution from the dine-in rolling out some new markets, I think you were constantly looking at the strategic side of the acquisition scenarios that both will bring - potentially bring us more order flow, solidify our market position in some of our top markets and also allow us to evolve into other delivery verticals. Other things that I think are on the horizon, which if you cover some of the other bigger companies are pretty mainstream stuff that just we haven't had the ability to take advantage of are things like paid placement in other service revenues that we just have not been able to technically roll out 100%.
  • Jeff Van Sinderen:
    And then I know you mentioned grocery and alcohol delivery, but just wondered if there's any more color you can give us on how those are going? I know it's still relatively early for you, but I think the early - very early results were encouraging. So just wondering if there is any more to add on those, too.
  • Carl Grimstad:
    Yeah if you remember we initially stuck our toe in the water with the grocery vertical because we wanted to stay top of mind to our diner universe. We quickly realized that margins were great, basket sizes were larger and there was demand there that I don't think is going to go away. So we have a regional and local focus as well. It's still from a revenue perspective not material. We've had to do a lot of technical enhancements to create a product in a customer facing app that is easy to utilize. I mean obviously in a grocery store you have a lot more SKUs than you do on with your general restaurant menu. So we're focused on it. We have a strategy around it. And all the unit economics are very favorable. Alcohol is just is here to stay as well but again the biggest challenges in and around alcohol is state-by-state adhering to the rules and regulations as we run across them. So we're focused on both of those verticals.
  • Jeff Van Sinderen:
    And then just a follow-up on cannabis I know you addressed that a little bit. Just wondering how we should think about sort of where you start regionally? I think, Florida maybe is one that you can start in? You may be - that maybe one of the first ones but just any color on kind of region where you can start? And then also would you try to get into other regions where you don't really have the you’re going to stick with your general footprint?
  • Carl Grimstad:
    Yes. No, I think if you - and there are a lot of websites you can look at it. You can look at a map of where you can do things and where you can’t. The beauty of the way we have pivoted the business, and I’ve said this before, whether it's cannabis or through garnering a footprint with our dine-in product what have you, we can be in any market. Right. So if when and if the opportunity presents itself in a state that we’re not currently in, we will essentially spin up our logistics platform in a very short period of time to be in that market.
  • Operator:
    And our next question is from Alex Fuhrman with Craig-Hallum Capital Group.
  • Alex Fuhrman:
    Great. Well, thanks for taking my question. Carl, I wanted to ask about just your core business here, unit economics look very strong, EBITDA margin highest in the industry here at north of 20%, so I wanted to ask about just the number of active diners it looks like it's been falling a little bit, given how strong the unit economics are and at that you're really spending so little money on marketing here. I mean is there a point in 2021 where you start to reinvest in marketing a little bit to grow so file back up just curious kind of how you balance those things as you move throughout the year.
  • Carl Grimstad:
    Right. You know we get asked about that a lot. I guess the first way to think about it is there is a - we have such healthy margins. It does give us the latitude to be able to invest. I think if nothing else was we probably proven this year that we're very fiscally responsible. And I do think that there are some strategies in and around that would be considered marketing that we have seen some success with. That being said, I'm not sold on the strategy of focusing solely on diners, right. And trying to attract diners to the platform by giveaways and other promotions that some of the larger companies I guess have the latitude to spend on major endorsements and what have you. It's hard for me to believe how that payback works. Conversely and I've said it often, I think from where we sit our strategy is to focus on the restaurant first or for that matter that entity that's providing a good - sale of a good or service meaning whether it's you know in the future a liquor store dispensary or a grocery store. Our background comes from providing merchant services from a payment perspective I think we'll continue to evolve the business that focuses restaurant and merchant first. I think that's where you'll continue to see us invest our marketing dollars. And given what you pointed out are healthy margins would have you it does give us a lot of latitude to invest in those areas. But I think you can feel confident that we're going to do it in a manner that is - that yields a return for shareholders.
  • Operator:
    And our next question is from Kunal Madhukar with Deutsche Bank.
  • Unidentified Analyst:
    This is Rod on the line for Kunal. So you recently announced you completed a lot of integrations and partnerships so - order management and on systems and the partnerships like Nextbite and the one we were just discussed in the previous question. So kind of in light of all of these how should investors think about the vision for where you want to be what you're building towards, where you want to be, and especially given your comments about being more restaurant and dining focused. And then related to that are there particular gaps that you feel you still need to close or do you think with that vision that you now have most of the core pieces in place? Thank you.
  • Carl Grimstad:
    Well I think we've talked about this before, in Waitr's past life they hadn't focused on essentially integrators, POS providers or what have you. And there might have been a number of reasons why they did that but it also held the company back from many opportunities with nationwide brands and even some regional brands. So I think what you’ll see us do is to continue to build out as many integrations with players that have a restaurant footprint as possible because what it does for our sales team is it opens up opportunities with many units that come online in not just one, two, three of them but hundreds at a time. So I think that there is still opportunity beyond what we've announced order mark it's a Checkmate Charlie, I mean there are a number of others for us to further rollout.
  • Operator:
    Ladies and gentlemen, we have reached the end of the question-and-answer session. Now I'd like to turn the call back over to management for closing remarks.
  • Carl Grimstad:
    In summary, just thank you again to everyone that supported us this year or this past year 2020 was a challenging and exciting year for the company both with a lot of micro issues that we had to deal with internally, but then also the pandemic and the macro issues, storms and what have you. I think we've done a good job in phase one of the project, we've created a sustainable profitable growing company that's able to attack multiple opportunities going into the future. So I thank everyone again for your time today, and we look forward to talking to you again in a few months.
  • Operator:
    Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great evening.