Instacart (Maplebear Inc.) (NASDAQ:CART) Q1 2024 Earnings Call Transcript May 8, 2024

Instacart (Maplebear Inc.) isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Instacart’s First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Rebecca Yoshiyama, VP of Investor Relations, Capital Markets and Treasury. Please go ahead.

Rebecca Yoshiyama: Thank you, Josh and welcome everyone to Instacart’s first quarter 2024 earnings call. On the call with me today are Fidji Simo, our Chief Executive Officer; Nick Giovanni, our current Chief Financial Officer; and Emily Reuter, our current Vice President of Finance and Incoming Chief Financial Officer. After brief prepared remarks, we will open up the call for live questions with Fidji and Emily. During today’s call, we will make forward-looking statements related to our business plans and strategy, future performance and prospects, including our expectations regarding financial results, partnerships, equity issuances and share repurchases. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated.

You can find more information about these risks and uncertainties, including those related to the classification of shoppers on our platform in our last Form 10-K filed with the SEC. We assume no obligation to update these statements after today’s call, except as required by law. In addition, we will also discuss certain non-GAAP financial measures, which have limitations and should not be considered in isolation from or a substitute for our GAAP results. A reconciliation between these GAAP and non-GAAP financial measures is included in our shareholder letter, which can be found on our Investor Relations website. Now I’ll turn the call over to Fidji for her opening remarks.

Fidji Simo: Thanks, Rebecca. Hi, everyone. I hope you had the chance to read our shareholder letter, which highlights our strong start to 2024 and how we are continuing to raise the bar across all the most important dimensions of groceries. As the largest online grocery marketplace in North America, we provide 98% of families with access to delivery and pickup from over 1,500 retail banners who represents more than 85% of U.S. grocery sales. On top of the best selection, 45% of our orders are accepted by shoppers who are already at or within a mile of the store, which means your first item is often being picked out faster than it might take you to get out of the front door. Our shoppers also have the advantages of experience and our technology.

A delivery truck filled with grocery items heading to a local school.

With shopper tenure on the platform at an all-time high, constant improvements to our models and in-store tools like planograms, shoppers can complete orders faster and with more accuracy. Simply put, no other marketplace offers a leading customer experience we provide at the scale and competitive cost we deliver it at. And now by partnering with Uber, we are giving people more of what they are looking for. By bringing on hundreds of thousands of restaurants to Instacart overnight, we are creating an unmatched combination of grocery and restaurant options for Instacart customers. The Instacart app can now serve more of our customers’ food needs and our Instacart Plus membership becomes twice as valuable with no delivery fee on grocery and restaurant orders over $35.

By giving our customers more reasons to turn to Instacart, we believe we’ll also be able to drive more sales and growth opportunities for our retail and brand partners, which remains our top priority. Overall, I am excited for what’s ahead for Instacart in 2024 and beyond. We have a strong operating foundation, a relentless focus on profitable growth, and we are executing well on our vision to build the technologies that are transforming the grocery industry. So it is with great confidence that we announced Emily Reuter as our next Chief Financial Officer. Nick will retire at the end of Q2 and Emily’s role is affected immediately after we file our Form 10-Q, which is expected later this week. As Nick and I discussed the best CFO profile for our future business, I wanted someone with a depth of operating experience in a complex marketplace business similar to our own.

We found out and more in Emily and she has been contributing enormously since she joined in January. Emily is undoubtedly the best CFO to help drive Instacart’s future. I want to thank Nick for his exceptional contributions over the past few years. By instituting a new level of financial rigor across the company, Nick helped transform our business into one that deliver strong profitable growth and was one of very few tech companies that could make a successful public market debut last year. Now I’ll turn the call over to Nick to provide a few remarks.

Nick Giovanni: Thank you, Fidji. It has been an incredible 3.5 years, and I’m very proud of what we have accomplished together at Instacart. The level of execution and teamwork required to create a sustainable, profitable and growing company and then to take it public after the longest tech IPO drought in history was one of the most satisfying experiences I’ve had in my career. Instacart is in a great position as the clear leader with strong operating fundamentals. And after working closely with Emily over these past several months, I am certain that our team, our partners and our shareholders cannot be at better hands. It has been a pleasure engaging with all of our investors and analysts over the past few years. Thank you all. And with that, I’ll step off the call and turn it over to Emily.

Emily Reuter: Thank you, Fidji and Nick. Since joining Instacart in January, I’ve become even more bullish on the company’s future. I joined Instacart because of its clear leadership position with an online grocery and its impressive vision for the future of grocery technology. I am now even more confident in our ability to capture our share of the massive market opportunity ahead. My confidence is driven by a few things: the depth of our technology integrations as well as the breadth of our longstanding retailer and brand partnerships, our ability to deliver a great customer experience. This means having the best selection combined with high-quality service, all at the price and speed customers want it, our cost-to-serve advantage underpinned by our ability to fulfill multiple big basket grocery orders from the same store at the same time.

This allows us to generate efficiencies from batching while also giving shoppers more earnings opportunities. And finally, we aren’t just focused on delivering results for the next few quarters or years. We are investing in technologies that will shape the future of grocery and grow the pie for all our stakeholders. I could not be more excited to work with our teams to drive even more profitable growth for Instacart as we work to further extend our lead across all of these dimensions. I also want to thank Nick for his support over these past few months and Fidji for her inspiring and collaborative partnership from day 1. Now, let me provide more color on our financial results and outlook. Q1 was an exceptionally strong quarter for us with both GTV and adjusted EBITDA beating the high end of our guidance ranges.

On one hand, our outperformance in GTV was driven by a continuation of trends we have been discussing. This includes improving cohort dynamics consistent with what we’ve said in the past, which is our mature cohort declines continued to improve and our new cohorts continue to be bigger than pre-pandemic cohorts. It also includes a lessening year-over-year EBT SNAP headwinds, which had the biggest impact in Q4 and a smaller impact in Q1, primarily because of the successful EBT SNAP launches with Kroger and Costco. On the other hand, our year-over-year GTV growth in Q1 also benefited from a number of one-time things. This included just over 1 percentage point of growth from Leap Day in addition to the stronger-than-expected seasonality as Q1 2024 was an exceptionally bad winter season, especially compared to the prior year quarter.

After taking all of these factors into consideration as well as what we’ve seen so far in this quarter, we arrived at our Q2 GTV guidance of $8 billion to $8.15 billion, representing 7% to 9% year-over-year growth. This growth output is a bit lower than Q1, primarily because we don’t expect the benefit of inclement weather. While Q2 growth will not have the benefit of Leap Day, we largely expect this to be offset by EBT SNAP moving from a modest year-over-year headwind to a tailwind from Q1 to Q2. Overall, our Q2 GTV outlook represents a sustained step-up versus the 5% year-over-year growth we delivered in 2023. We are also guiding to strong Q2 adjusted EBITDA of $180 million to $190 million and are well on track to delivering adjusted EBITDA expansion in full year 2024 on both an absolute and percentage GTV basis.

One important thing to note about our adjusted EBITDA outlook is it reflects our ability to manage multiple levers across our P&L to drive leverage. In Q2, we expect advertising and other revenues to grow largely in line with what we experienced over the past two quarters. This means our adjusted EBITDA as a percentage of GTV is expected to grow year-over-year, primarily driven by transaction revenue and adjusted OpEx leverage. We are also continuing to take a disciplined approach to equity management. We continue to expect net dilution to be in the low single-digits before any share repurchases. And in 2024, we are committed to making sure that the net value of equity we grant employees this year is less than the adjusted EBITDA we delivered in 2023.

We are confident in our ability to execute and generate more shareholder value over time. This is why we cumulatively repurchased approximately 27 million shares for $751 million by the end of Q1. As of March 31, we had $249 million of remaining share repurchase capacity and plan to continue opportunistically repurchasing shares. Overall, our business is performing well and our operating fundamentals are solid. We remain relentlessly focused on making our service better, deepening our leadership position and innovating with new technologies like [indiscernible] and our partnership with Uber. While we don’t expect these new growth initiatives to immaterially impact our financials in Q2, we believe that they have the potential to drive more value to consumers and growth to our retail and brand partners over time.

We also expect all of this will help us drive more profitable growth and progress towards our long-term financial targets over time. We’re excited about the future, and we appreciate your support as shareholders. With that, Fidji and I are here to take your questions. Operator, you may now begin.

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