Waitr Holdings Inc. (WTRH) CEO Carl Grimstad on Q2 2021 Results - Earnings Call Transcript

Waitr Holdings Inc. (WTRH) Q2 2021 Earnings Conference Call August 11, 2021 5:00 PM ET

Company Participants

Carl Grimstad - CEO

Leo Bogdanov - CFO

Conference Call Participants

Dan Kurnos - Benchmark Company

Jeff Van Sinderen - B. Riley & Co

Operator

Good afternoon, everyone. I would like to welcome all of you to the Waitr Holdings Incorporated Second Quarter 2021 Conference Call. Today's call is being recorded.

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 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 and 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.

Finally please note that on today’s call, management may refer to non-GAAP financial measures. Please refer to Waitr's second quarter 2021 earnings release for a full reconciliation of its non-GAAP financial measure to the most comparable GAAP financial measure.

I would like to now turn the call over to Waitr’s CEO, Carl Grimstad, who will give an overview of the company’s business activities and developments for the second quarter of 2021. He will then turn the call over to Leo Bogdanov, who will provide an overview of the company’s operating and financial results. We will then open the call for Q&A. Carl?

Carl Grimstad

Thank you. Hello everyone and thank you for joining our call today. This quarter, we strengthened our market presence in the on-demand delivery sector, by partnering with a number of national brands, including Potbelly, Long John Silver's, Smoothie King, Applebee's, Red Robin and KFC.

With the onboarding of these popular chains and our continued addition of independent restaurants, we now have over 25,000 partnered restaurants on our platform. We continue to support our restaurant partners in communities we serve and are hopeful that the recent signs of recovery from COVID-related impacts continue and that the emergence of COVID variance does not result in more hardships for the restaurant industry as a whole.

As I've mentioned many times before, our strategy is to increase our ecosystem of restaurants, diners, and independent contract drivers. As the size of this group increases, we plan to introduce additional products and services that are anticipated to create larger revenue and earnings growth opportunities.

To that extent, during the quarter, we've methodically invested our capital in various initiatives, which are positioning the company for future growth. These include additional investments in our technology platforms with new product offerings, bolstering our customer and partner support teams, as well as continued opportunistic expansion into new markets, all of which we believe are necessary for the core delivery business.

Additionally, we continue to strategically invest in our independent contract driver base in the second quarter of 2021, ensuring adequate drivers supply. This has resulted in the highest level of active, independent contractor drivers since the company's inception at approximately 34,000 drivers.

We have very recently executed three definitive purchase agreements to purchase payment processing companies, pro merchant Cape Cod merchant services and flow payments. The combination of these businesses will continue to broaden the company's capabilities beyond third party food delivery. We are excited to close these transactions in the near term.

During the quarter, we also made an investment in Figure Technology and their Series D financing round. Figure is on the cutting edge of payment solutions and utilizes block chain technology for loan origination, equity management, private fund services, banking and payments. We are also working on an agreement with their affiliate to figure payments with the goal of leveraging their underlying technology within our constituent base of diners, restaurant partners and independent contract drivers to facilitate alternative payment and disbursement options. This is anticipated to further intertwine our business with transformative FinTech solutions.

As previously announced, we also have recently launched a strategic initiative to change our name and visual identity in a comprehensive company rebrand. We look to identify a corporate name and brand that unifies our current service offering and better reflects our long-term business strategy. The rebranding strategy reflects our ongoing commitment to innovation, continued expansion into new delivery verticals and other business ventures.

We are looking forward to the second half of the year as we continue to make long-term investments in the company and focus on fundamental operational and strategic initiatives necessary to grow the business.

With that, I'm going to turn it over to Leo, our Chief Financial Officer for a recap of second quarter results.

Leo Bogdanov

Thank you, Carl. I'd like to now review, our second quarter of 2021 financial results. Revenue for the second quarter of 2021 was $49.2 million compared to $50.9 million in the first quarter of 2021, $60.5 million in the second quarter of 2020. For the six months ended June 30, 2021 revenue was $100.1 million compared to $104.7 million for the six months ended June 30, 2020. Adjusted EBITDA for the second quarter of 2021 was $2.5 million compared to $8.3 million in the first quarter of 2021 and $16.7 million and second quarter of 2020.

Loss per share for the second quarter of 2021 was $0.05 compared to the loss per share $0.03 in the first quarter of 2021, and earnings per diluted share of $0.10 for the second quarter of 2020. Adjusted loss per diluted share for the second quarter of 2021 was $0.04 compared to adjusted earnings per diluted share of $0.01 in the first quarter of 2021 and $0.11 in the second quarter of 2020.

Cash on hand totalled $60.5 million as of June 30, 2021. Total outstanding long-term debt as of June 30, 2021 was $84.5 million compared to primarily of our $35 million term loans, $49.5 million of convertible notes.

That concludes the recap our second quarter 2021 financial results. We're going through a short Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator instructions] And at this time we'll go first to c with the Benchmark Company. And please go ahead, sir. Your line is open.

Dan Kurnos

Carl, can we just start off by level setting sort of expectations around the pieces here? We kind of look at the core business and the trajectory, maybe just help us think as you kind of go through this rebrand of what the organic trends are right now. And as you make these investments, I guess maybe if you could sort of break out short-term versus long-term, what the margin flow through is. This quarter obviously some investment historically, you'd said, kind of north of 20, how do we think about it in the near term and in the long term?

Carl Grimstad

Yeah. So let's start with that first. I still think long-term those margins that we've talked about are attainable, but as I said in the past, it's going to be more than just last mile delivery, right? It's going to be supplemental businesses like payments and other things that are going to combine for more of an offering to our customer base than just free delivery here, free delivery there.

Dan, ultimately we're in this business now where we can't be a mini me of door dash, right. We have to be more than that. We can't play the game that they play. And that's why I've always talked about our three main constituents. And in thinking beyond just the last mile delivery, the addition of these payment businesses is really the first big step in giving ourselves the capability to offer a full suite of payment services, not only to our installed base, but beyond that into other verticals and what have you.

So I still think long-term those EBITDA margins are attainable, but not purely just from last mile delivery. In the short term, I think that this quarter is about as soft as the aggregate EBITDA will hit. I think that the rest of the year rebounds a little bit will be the timing of some of the impact of RPOs integrations with two big third parties. Historically, the quarter is a little softer. At least it was last year than the second quarter. But I do see a rebound in the fourth quarter.

It has been tricky to predict the top line of the business. And that's why I've been reticent to get out over our skis with it, because the impact of COVID where as we've talked about in the past has been great in validating last mile delivery, but it also creates a nightmare of projecting. Let's just say if stimulus, for example, didn't hit in mid March Q2's revenue number would have been bigger than Q1. And if I think if we scrape out the effects of the pandemic since last year, the business is essentially where it would have been, but only profitable today where it wasn't prior to the pandemic. So from a base business, that's where we start from and then we build from there, with our strategy.

Dan Kurnos

Got it. That's helpful. And can you just, I mean, you brought it up a couple of times in that response, but maybe just talk a little bit more about the strategic rationale of the acquisitions, how quickly you can move that into adjacencies and sort of how that filters through from top to bottom over the course of the year?

Carl Grimstad

Yeah, I think in potentially in 2022 that could represent 10% growth to the business just on its own. And it's a multi-pronged strategy. So, these businesses are like many I Payments, which was my old company, right? They offer a broad suite of payment solutions across all types of SIC codes of merchants, right? So sure we have the low hanging fruit of our 25,000 restaurants that are captive for us to go after, but then we have every merchant category that you can imagine with several of what's in Vogue marketing strategies that, payments companies use today.

So I mean that business on its own, I expect even without the synergistic aspect of having an embedded merchant base, it's already doing business with us. It's going to be, it's going to drive some really nice revenue growth and earnings over time and give us that one other stickiness that additional product to our merchant partners that we can deliver it to him in a packaged offering that will make financial sense.

Dan Kurnos

Got it. Thanks. And then if I could just sneak one more just in terms of the adjacencies, still no update on cannabis. I know that's kind of a longer tail opportunity. Grocery seems to be growing all right. Maybe just talk through kind of how the ancillaries are developing at this point and is that included in that 10% upside from payments or is that payments alone? And then the ancillary plus the core black mile delivery is the remainder.

Carl Grimstad

Yeah, I think that's payments. The number I was throwing out was them on their own. These other verticals, cannabis is tricky, right? As everyone knows, as we sit here today, traditional payment methods are not available to retailers in cannabis nor are the ability to deliver their product. Like we can deliver a cheeseburger, right?

So there are all types of regulatory dynamics around both of those things, all of which we are working on. And you could be assured that our solution is going to comply with all regulatory entities and it's state by state. And, it's not quite, alcohol isn't as quite as onerous, but it's the same thing with, as we've expanded state by state in alcohol delivery. There are a number of dynamics there that you have to comply with.

All that being said, the more gray it is, the more difficult it is for someone to step into that business is what's attractive to us, right because we're going to do the work, we're going to come up with a solution that marries both payments and delivery. And everyone seems to be afraid of the last mile delivery because they think it's such a money drain and it cannot be done profitably.

And if we've done anything else last year, I think we've shown that we can do that component of it and at a profitable level. And I think that that's going to be a super important skill for this business and super valuable to many different players that are serving -- that are selling goods and services in the future. Because if all they're going to be left with is a duopoly, it's not going to bode well for pricing or flexibility or competitiveness. And, it seems like that's the direction, the Uber's and the door dashes are going. So I think we'll be refreshing alternative to whether it's the restaurant industry or the convenience store industry obviously cannabis, but across the board.

Dan Kurnos

Got it. Thanks for all the color, Carl. I really appreciate it.

Operator

And we'll go to our next question from Jeff Van Sinderen of B. Riley.

Jeff Van Sinderen

I just wanted to follow up a little bit more on the driver cost picture. Maybe you can speak to that and give us kind of the outlook there.

Carl Grimstad

Yeah. As we got a lot of color from Uber in and around their quote unquote investor, the investment in drivers and, I think it was pretty well-documented that we've had a tight labor market for a period of time, usually coincides with subsidies. So I think that if we consider it an investment in Q1 and Q2, it probably impacted notably the EBITDA line.

That being said, whatever we did resulted in a lot of success, right. We have a high, highest driver count that we ever had. We have our lowest delivery times that we've ever had at least since I've been here. I do think that those elevated costs are trending lower and we're starting to see that in July. So I don't think that that continues to get any worse. I think that has peaked.

Jeff Van Sinderen

Okay. And then if we can kind of just look at I guess you're thinking around the sales and marketing and G&A lines for Q3 or for second half, those were a little bit higher than we expected in Q2. So just wondering directionally where those might head?

Carl Grimstad

Yeah. So couple of things about that, the push into QSR, which is a necessary strategy long-term for the business, right? You need that level of restaurant selection because, you don't want your customer that, once a month wants a big Mac to remember in his mind, oh, well, that's not on the waiter platform in my market. So I have to go to a competitor. Super important that impacted top line revenue at least in the short term as we've seen revenue per order come down slightly because even though it's still healthy margin, it's not as higher margin as your independent restaurant.

We did some additional coupons to try to reactivate some dormant diners in the quarter. I think that will bode well. And then, we opened -- this year, we've opened maybe some 100 new markets, smaller markets. And when we go into these markets, we do start with some lower rates that over time do increase contractually. So I think those were well thought out. I think they were smart. I think that we'll continue on this strategy of these opening, these smaller markets. But I don't, think you see things get more heavy handed than you saw them in this quarter.

Jeff Van Sinderen

Okay. And then just kind of looking at the operating profitability profile, when would you expect to operating profitability?

Carl Grimstad

I'm not sure. I understand the question. Yeah. The operating.

Jeff Van Sinderen

Operating margin operating margin line.

Carl Grimstad

Leo, what line is he actually pointing to? Why don't you explain because I don't seem to understand.

Leo Bogdanov

Yeah, sorry. I'm, just looking at the income from operations line, which was a little bit lower than we expected. I'm just wondering if that, when you would see that line getting back to positive,

Carl Grimstad

So what number are we looking at? Jeff?

Jeff Van Sinderen

3.92,000, I believe negative.

Carl Grimstad

Leo. Leo, can you help me out here?

Leo Bogdanov

Yeah. I think we probably expect a rebound there and sometime in 2022 that's expectation at that stage.

Jeff Van Sinderen

So 2022, got it, helpful. Okay. And then I just had one more, just was curious on the investment in the blockchain application, anything you can help us with there?

Carl Grimstad

Yeah. So are you familiar with Figure Technologies?

Jeff Van Sinderen

Not especially?

Carl Grimstad

All right. So figure is founded by a guy named Mike Cagney who was also the Founder so far. And they they're a blockchain enabled company that has been focused on the mortgage industry. They also have a product that is called Figure Pay that they aim to essentially disengage franchise member banks and reduce the cost of interchange. So as you know, there are a number of these defy or challenger banks that have popped up that are attacking all different revenue streams from established banks.

In the Visa MasterCard world member banks earn something called interchange, right to -- essentially they say that that is for credit risk marketing, maintaining of their networks and what have you. Well Figure Pay aims to sit in between the merchant and the consumer and offer the ability to transact and in some cases having a non-collateralized short-term loan like an Afterpay, if you will to pay for their goods.

So, if you think about our constituents again, merchants, consumers, you think about, we pay drivers every day. This is a super interesting, innovative payment related product and offering to offer to. Just remember there's 2 million active diners on our network, but six million people have downloaded that app. We've got 25,000 merchants right? And then you have another 34,000 drivers.

It's a super valuable echo system that a company like Figure or other payments company find super valuable. So, with the addition of these payment businesses that we purchased and our ability to market their Figure Pay solution, it's, one additional product offering that is innovative besides traditional credit card processing.

Jeff Van Sinderen

Okay. Fair enough. Thanks for taking my questions and best of luck.

Operator

And so that does conclude today's question-and-answer session. I will now turn the call back to Carl Grimstad for any additional or closing comments.

Carl Grimstad

No closing comments other than thanks for your interest. We continue to be excited about the future of our business and the rest of this year and have a nice night. Thank you.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.