Q4 2020 Waitr Holdings Inc Earnings Call HOUSTON Mar 8, 2021 (Thomson StreetEvents) — Edited Transcript of Waitr Holdings Inc earnings conference call or presentation Monday, March 8, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Carl A. Grimstad Waitr Holdings Inc. – CEO & Chairman * Leonid Bogdanov Waitr Holdings Inc. – CFO & CAO ================================================================================ Conference Call Participants ================================================================================ * Alex Joseph Fuhrman Craig-Hallum Capital Group LLC, Research Division – Senior Research Analyst * Daniel Louis Kurnos The Benchmark Company, LLC, Research Division – MD & Senior Equity Analyst * Jeffrey Wallin Van Sinderen B. Riley Securities, Inc., Research Division – Senior Analyst ================================================================================ Presentation ——————————————————————————– 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 our Investor Relations website at investorswaitrapp.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. Our actual 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 fourth quarter 2020 earnings release for a full reconciliation of its non-GAAP financial measure to the most comparable GAAP financial measure. I would now like to 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 fourth quarter of 2020. 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– 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 stabilize 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 table side 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. Now I will turn it over to Leo, our Chief Financial Officer, for a recap of fourth quarter results. ——————————————————————————– Leonid Bogdanov, Waitr Holdings Inc. – CFO & CAO  ——————————————————————————– 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 in 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 in the year ended December 31, 2019, an increase of $307.1 million. Net loss for the year ended December 31, 2019, included 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 in the fourth quarter, 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 of 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. ================================================================================ Questions and Answers ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) And our first question is from Dan Kurnos with The Benchmark Company. ——————————————————————————– Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division – MD & Senior Equity Analyst  ——————————————————————————– Great. 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– 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 our 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. The next follow-up question that you had was in and around organic trends, is it? ——————————————————————————– Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division – MD & Senior Equity Analyst  ——————————————————————————– Yes. I’m just curious, 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– Yes. So ex weather, I think — if we think about 2020, we had 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 sails going into the rest of — at least the first half of this year. ——————————————————————————– Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division – MD & Senior Equity Analyst  ——————————————————————————– 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– Right. So obviously, the — both the opportunity and the biggest challenge is 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 let’s just 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’ve 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 payments 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 run across, and it will be a focus for us. ——————————————————————————– Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division – MD & Senior Equity Analyst  ——————————————————————————– 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– Too early. ——————————————————————————– Operator  ——————————————————————————– And our next question is from Jeff Van Sinderen with B. Riley & Co. ——————————————————————————– Jeffrey Wallin Van Sinderen, B. Riley Securities, Inc., Research Division – Senior Analyst  ——————————————————————————– Carl, I wonder 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’re thinking 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– 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 last 6 months kind of left 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 probably is a neutral from where we are because it will be balanced by a subsidy package and, hopefully, a lot more people getting back to work. ——————————————————————————– Jeffrey Wallin Van Sinderen, B. Riley Securities, Inc., Research Division – Senior Analyst  ——————————————————————————– Okay. So if 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? ——————————————————————————– Carl A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– 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, and other service revenues that we just have not been able to technically roll out 100%. Another thing that we’re excited about is our ability to provide our driver network with faster funds. This is another thing that we’ve built out over the last 6 months that both will help with driver retention as well as generating additional service revenue. ——————————————————————————– Jeffrey Wallin Van Sinderen, B. Riley Securities, Inc., Research Division – Senior Analyst  ——————————————————————————– And then I know you mentioned grocery and alcohol delivery. But just wondering 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’s any more to add on those, too. ——————————————————————————– Carl A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– Yes. 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. The — it’s still, from a revenue perspective, not material. We’ve had to do a lot of technical enhancements to create a product and 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 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 — it’s 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. ——————————————————————————– Jeffrey Wallin Van Sinderen, B. Riley Securities, Inc., Research Division – Senior Analyst  ——————————————————————————– Okay. Great. 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, maybe one of the first ones but just any color on kind of regional where you can start. And then also, would you try to get into other regions where you don’t really have business, how are you going to stick with your general footprint? ——————————————————————————– Carl A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– 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 or 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 Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division – Senior Research Analyst  ——————————————————————————– 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 wanted to ask about just the number of active diners, looks like it’s been falling a little bit. Given how strong the unit economics are and that you’re really spending so little money on marketing here, I mean, is there a point in ’21 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 A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– Right. We get asked about that a lot. I guess the first way to think about it is there’s — we have such healthy margins. It does give us the latitude to be able to invest. I think, if nothing else, we’ve 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 through 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 — a sale of a good or a service, meaning, whether it’s, 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, our healthy margins or what have you, it does give us a lot of latitude to invest in those areas. But I think you could 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 on order management and on systems on the partnerships like Nextbite and the one you were just discussing with the previous questions. 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 than diner focused. And then related to that, are there, like, 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 piece is in place? ——————————————————————————– Carl A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– Well, and 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 that 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 1, 2, 3 of them, but 100 at a time. So I think that there is still opportunity beyond what we’ve announced: Ordermark, ItsaCheckmate, Chowly. I mean there are a number of others for us to further roll out. ——————————————————————————– Operator  ——————————————————————————– Ladies and gentlemen, we have reached the end of the question-and-answer session. And now I would now like to turn the call back over to management for closing remarks. ——————————————————————————– Carl A. Grimstad, Waitr Holdings Inc. – CEO & Chairman  ——————————————————————————– 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 1 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 tonight’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a great evening.