Dear ladies and gentlemen, welcome to the Q1 2019 results of HelloFresh SE. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press * key followed by zero on your telephone keypad for operator assistance. May I now hand you over to Dominik Richter, CEO, who will lead you through this conference. Please go ahead, sir.
Yeah, good morning and a warm welcome from myself and our CFO, Christian Gaertner. Our first quarter earnings call 2019. We would like to keep this call rather short and concise since we've articulated both our growth strategy as well as how we want to balance growth and profitability for the rest of the year in great detail before. I think our Q1 numbers, the first quarter numbers, also show that the strategy is working out very well. If we turn to the first quarter highlights, on page three of the presentation. Budget in seasonally advantageous quarters, and that's also something that's reflected in our Q1 numbers. If you think about market share, then I think in terms of market share, we've made great progress in the U.S.
According to our own estimates, we're trading between 40%-45% market share, which is twice the size of our nearest competitor in the U.S. alone. In international, we're even better. According to all the estimates that we can see, on a blended basis, we have about 70% market share. In some markets, even higher than that. Looking just at the first quarter, I think we had a very strong Q1. We grew with over 30% year-on-year, both in terms of active customers as well as in terms of constant currency revenues. If you look at it not year-on-year, but quarter-on-quarter, then you can see that especially in the U.S., we had a very strong first quarter with sequential growth of over 25%.
Looking at our contribution margin, we expanded contribution margin to 29%, which is at about the same level where we were just three quarters ago before we actually did the price adjustments and started our value brand. Great work of the team and our operations functions, which within two quarters has actually made back all that margin that we had foregone in terms of better retention and lower customer acquisition costs when we made our price adjustments in the U.S. market. Fourth of all, our adjusted EBITDA margin came in at about minus 6%, which was one percentage point better than the same quarter last year. Finally, I would like to point your attention to the strong liquidity position that we have. We have access to cash of about EUR 265 million, which consists of cash on balance sheets of about EUR 190 million.
We have additional undrawn credit revolver of about EUR 76 million. I think all in all, a very comfortable cash position on the balance sheet, which allows us to operate the business in the way that we do. Moving on, as I have already pointed out, we are very clearly the number one player globally, twice the size of the next biggest competitors on the U.S. market alone. I think about three to four times the size of the next biggest competitor globally. We continue to expand market share. Moreover, I think we have also shown in terms of customer satisfaction that given that we are leading competition in terms of variety, price, and service levels, that we have been voted over and over again as best meal delivery service.
Most recently, I think we won a pretty significant prize in the U.S., which is crowdsourced prize, which just shows that I think a lot of the investments that we have done along the number of meals that we have, prize that we have, and service levels, it is very hard to basically beat us on any of those dimensions. Same applies to the operations side, to our supply chain side, where we have also won a number of prizes, most recently, number one in features prize, which is directed at the whole manufacturing industry, which I think you can see that a lot of the work that we do is actually reflected not only in the numbers, but also if you talk to industry experts or if you talk to customers directly.
Coming back to the numbers, if you look at our customer growth, you can see that in Q1, as a result of focusing our marketing investment on the seasonally advantageous quarters, we grew customers year-on-year from 1.9 million to about 2.5 million. As you can see on the graph, the pattern is kind of familiar. You can always see us stepping up our customer base in the first quarter, which acts as kind of the baseline for the rest of the quarters of the year. That is something that is, I think, a very recognizable pattern by now, which is something that you should also expect for the next quarters in 2019. Over to the next bit and look at constant currency revenue. We have grown constant currency revenue at about 35% year-on-year, from just under EUR 300 million to EUR 420 million.
That consists of both clusters, U.S. and International, showing a very good performance. U.S. grew 23% year-on-year against a very tough comp. Last year, Q1 2018, was by far the highest growth momentum that we had seen in a long period. Absolutely, we managed to grow another 23% year-on-year, again, the strongest comp of the year. International saw 53% year-on-year growth. Again, slightly easier comp, but nonetheless, I think it is great to see that our international business has been growing at that rate. That growth really comes from a variety and from a large number of countries that are within our International cluster. The other thing that I wanted to mention is the sequential growth in the U.S., from Q4 2018 to Q1 2019. We have been growing sequentially by over 20% quarter-on-quarter, which I think is also really reassuring.
Really taking advantage of the market opportunities that we see in the U.S. I think it's also great to see that the strategy that we articulated, that we focus a lot of the marketing activities on the first quarter, is really showing results. With that, I'd like to hand over to our CFO, Christian, who will lead you through margin and results as well as guidance.
Okay, thank you. I'd like to first discuss the development of our contribution margin with you on slide seven of the presentation. What you see here is that we delivered a very strong contribution margin of 29% in the first quarter of this year. This is 2.9 percentage points higher than in the same period last year, and roughly on an equal level as where we ended up last year. How did we achieve that 2.9% year-over-year improvement? This really comes from COGS, and there are two core drivers. One, we further refined our menu planning data models that we've got in place. Secondly, we also further realized incremental efficiencies in our procurement organization. When you look at fulfillment expenses, those are roughly stable as % of revenues.
This is despite us having ramped up meaningfully new businesses over the last 12 months, both in the U.S. and in international. In the U.S., EveryPlate and Green Chef, and in international, our New Zealand business. Next, let's have a look at our EBITDA margin development. For the group, we delivered an EBITDA margin of negative 6.2% in the first quarter. This is 1.1 percentage points better than in the same quarter the previous year. This is driven primarily by a meaningful expansion on the contribution margin side, which we just looked at on the previous slide, and to a small extent, by the first-time application of IFRS 16 as well. Both of these effects are partly offset by higher marketing spend in the U.S. in the first quarter. You see that reflected here in the bottom left-hand side on the slide as well.
Sequential re-acceleration of our customer and revenue growth in the U.S. that Dominik had also just taken us through for the whole segment of the U.S. Secondly, also the ramp-up of our two newer businesses within the U.S., EveryPlate and Green Chef, also bringing in a lot of new, very attractive customers with high ROI to us. They're more early stage than the group overall, and therefore the share of marketing as a % of revenues is somewhat higher than for the group overall. When you look at the international segments, on the bottom right-hand side of that page, you see that we realized a positive EBITDA margin of 4.4% in international segments. That's an expansion of 5.4% versus the same period in the previous year.
I'd like to spend a moment to comment on the development of our EBITDA margin in the international segment in a bit more detail. You see that on the next slide, on slide nine. The first quarter this year is now the fourth consecutive quarter where we've delivered a positive EBITDA margin in that international segment. That in Q1 being typically the quarter where we spend the most on marketing to basically take full advantage of those growth opportunities in that quarter. Despite that, EUR 8 million absolutely with EBITDA in that segment alone, and a 4.4% margin. Now, if we were to look at just the more developed businesses, i.e., the businesses where we're active since 2015 or earlier within that international segment. The margin for that developed international part of that segment, the first quarter has been already north of 8%.
Great profitability in our international business. This is something that we see to continue in the rest of the year. With that, let me now spend a moment on our liquidity position on page 10. Our liquidity position remains very strong and effectively unchanged to where we ended the year last year. Cash on balance sheet of EUR 189 million. Our EUR 80 million credit facility that we have in place remains substantially undrawn. We produced a positive operating cash flow in the first quarter of the year, despite EBITDA losses. If you recall, the underlying driver of this, obviously our beneficial working capital dynamics in quarters where we show meaningful sequential growth. We have an inflow from working capital, and that's what you see coming through here, in our operating cash flow.
Let me conclude now by reconfirming our guidance for the full year on page 11. This guidance is unchanged to what we have communicated earlier in the year, i.e., we're targeting revenue growth of 25%-30% year-on-year on a constant currency basis. We target a contribution margin of better than 27%, and we're targeting an EBITDA margin for the full year within the range of -2% to +1%. We will pause here and open the call up.
Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question received is from Robert Burke from Berenberg. Your line is now open, sir.
Yeah. Hi, guys. 3 questions from me. The first on the U.S. It'd be great to hear if you have any insight for us on the U.S. growth, which of the 3, if any, of your segments over there perform better or worse? That'll be the first question. The second, staying on the U.S., you've just been through a quarter now, Q1, when your main U.S. peer has slashed its marketing budget. Did you see any noticeable benefit from their new strategy at this stage? The third one is a really obvious question, but I guess needs to be asked. Is there any specific reason that you're not updating your top-line guidance at this stage after the very strong Q1 performance? Thanks.
Thanks, Robert. When we look at the U.S., growth has really been driven by all 3 brands. I think if you look at the 2 newer brands, EveryPlate and Green Chef, then they're starting off of a much lower base, obviously. The operating model that we have is that we're really dynamically shifting our budgets across the 3 brands. I think, each one of those brands, I think we've been quite happy with. Like I said, the operating model is really that we have one team, which is dynamically shifting both in terms of creative assets as well as in terms of budget between the 3 brands. Where we see the best ROI, that's basically where for the week or for the next 2 weeks, we're doubling down. If you take a high-level view on it, then I think the message is pretty clear.
We're happy with the development of all 3 brands. I think it was exactly the right decision for us to launch 2 new brands last year. That's really helping us now to see leverage on the marketing budget. With regard to your second question, I think I already answered that in parts.
Always, as you have also seen in the last couple of years, Q1, we see best ROI on our marketing spend. That's why we're making sure that we can front-load some of the customer acquisition activities. Like I said, in the U.S., between the 3 brands, we try to dynamically shift that what we see in terms of customer acquisition costs, what we see in terms of trends, and the same thing we actually do in international. Where on a weekly basis, actually on a daily basis, the team that leads customer acquisition and leads our marketing activities is looking at where do we see the highest ROI, and which campaigns are performing particularly well, and then doubling down on those.
Let me comment on top-line guidance. So what you saw in the first quarter is that we have taken full advantage of a great opportunity that we saw in the market and brought in a lot of new customers. As you know, typically the customers we bring in in that first quarter are the highest ROI customers. So it is great that we had that opportunity, and we realized that, and that is what you see expressed in the 35% constant currency growth in the first quarter. Having said that, growth going forward for the remainder of the year will then be a bit more gradual so that it is still appropriate from our perspective to maintain our current guidance for revenues for the full year.
Okay. Thank you.
The next question we received is from Andrew Gwynn from Exane. The line is now open, sir.
Hi, good morning, everybody. Two questions if I can. The first, just again on the U.S. Could you just elaborate a little bit more, so you have got that big difference between contribution margin improvement and then the EBITDA. So, marketing, as you mentioned, but just wondering if you could just color it in a little bit more. And then on the French business, obviously, relatively new, how is it ramping up? Just a sort of early insight on that market. Thank you.
Thanks, Andrew. If you think about the U.S., on the contribution margin side, you can see that first of all, we're sort of benefiting from the additional scale that we have added that comes in parts through basically having more than one brand, but also comes in part because we've just been growing for a number of years now very strongly. As is the case in the improvements, it always takes some time. I think you've heard us in the past talk very confidently about contribution margin expansion and what we see as potential avenues for contribution margin expansion. Because there's also time delay between locking in new prices, locking in new fulfillment centers, and then scaling them up and seeing productivity improvement.
From the moment that we actually see those things coming through until they really come through in the P&L and the trade P&L, may be one, two, three, four quarters. That's what you can see in the first quarter results, and what was also partly one of the drivers why we did some pricing adjustments in the U.S. because we have been seeing that we've actually been expanding margin very strongly so that in our view, the optimal strategy was to lower prices a little bit. Same thing, if you think about the higher contribution margin, if you think about, we're benefiting from having more volume and more scale across different brands on the contribution margin side. On the other hand, Green Chef and EveryPlate start with basically very few customers.
Hence, marketing a new customer as a percentage of overall revenues for those two new brands, obviously looks very different to HelloFresh. I think you must not forget that both in international as well as now in the U.S., it's always sort of sum of the parts equation that we're looking at. It's always sort of like what you see us publishing is always a lot more nuanced if you actually look at the details. On the marketing side, you saw very strong sequential growth from the fourth quarter, and that was basically driving the higher marketing budget in the first quarter. Going forward, I think you should see that normalize more.
Just on the core underlying HelloFresh proposition in the U.S., presumably no real change to the sort of look and feel of the P&L. You're obviously seeing that improvement in contribution margin, the EBITDA margin showing a similar sort of pattern.
That's right. For the HelloFresh brand in the U.S., EBITDA margin is obviously quite a bit better than what you see for the full segment.
France. Sorry, any sort of early indications?
Yeah. France is, as you said, early stage. So far so good. We are happy with how it's going. It's completely in line with plan, but I would say it's still early days.
Okay. Thanks so much.
Next question we received is from Nizla Naizer from Deutsche Bank. Line is now open, madam.
Great. Thank you very much. I just had a question on the breakeven target for the full year. I think last year you mentioned that sometime over 2019 you intend to reach breakeven levels for the group. Just wanted to see if you can give us some visibility on when that could be. Could that be a Q2 development or Q3? Just some color there would be great. My second question is on your international expansion plans for 2019. Are you planning to add any more markets on top of the tests that you're doing in France and what you've also done in New Zealand? My last question is on the competitive landscape in the U.S. I know we heard that your largest competitor who's listed is pulling back on marketing, but has the dynamic changed from any of the other players that are in the market?
Are they doing better, worse than your previously largest competitor? Anything there that you need to be concerned about or see as an opportunity? Just some color there on the competitive landscape would also be great. Thank you.
Okay, great. Nizla, let me start with your question on breakeven timing and quarterly profitability. For Q2, you should assume that both the group and the U.S. will already go towards that breakeven line, whether slightly to the left or exactly there. They will come out, it's a little bit too early, but it certainly will. You will see a step up in the right direction from a margin perspective. International will continue to be positive in the second quarter. Q3, as you know, is for us seasonally always the slowest quarter, which then is also reflected in margin in terms of lack of fixed cost leverage when a lot of our customers spend some time on the beach and forth in the period. Q4 is typically a robust format from a margin perspective.
Yeah, that's probably what we should expect as the development over the next nine months.
We just launched France as Andrew Gwynn also asked about. I think, in general, looking at expansion always under the lens of TAM expansion. Given that we just added France as a new market, I think that's where the focus is on right now. Then I think we're definitely looking towards what could be additional markets. If you think about overall growth strategy, then a lot of the growth in international will be driven in Canada, in France that we had kicked off in the previous two years rather than adding any new ones. Since ramping up new markets always takes time, I think it's something definitely to be excited about in the long run, but not so much in the short or medium run if you define that as the next two years. I'm sorry, there was a third question. Just remind me.
This is on the competitive environment in the U.S.
Oh yeah, sure. I think competitive environment is actually an interesting question. I think, overall, if you benchmark our industry since inception to where most of the players are right now in terms of growth momentum, in terms of profitability levels, et cetera, then I think the industry as a whole is actually doing quite well. If we look at, there have been a couple of prominent sales in the U.S., like two retailers. There have been other companies that have done pretty well in their niches. If you look at us, I think also very strong development. I think overall, if you look at the U.S. and if you look at the top five players, then I think the industry is actually quite healthy. Now, what does that mean in terms of competitiveness?
I think that given that what you can also see at the customer awards that we have won over and over again, that the strategy that we have, which is really making sure we can be better than competition on every dimension that is really relevant to customers. Price, variety, number of meals on the menu, service levels, that's something that we have clearly articulated and that we believe in. I think that's something that is paying off. According to all the estimates that we have, we're growing faster than the market and growing faster than competition and are actually expanding market share.
Great. Thank you.
The next question received is from David Gardner from Morgan Stanley. Your line is now open, sir.
Hi. Thanks. Two questions from me. If we look at the contribution margin trajectory on slide seven, it's hard to sort of see why that sort of guide for the full year hasn't been increased. Can you just talk through how the trends, therefore in 2019 might differ from previous years? Where there may be contribution margin pressure through the end of the year that is sort of driving not increasing the contribution margin guidance? The second question, could you also quantify the impact of IFRS 16 on this quarter's EBITDA? Thanks.
Sure. Hey, David, it's Christian here. Firstly on your contribution margin, specifically when you look at the signal set, I would say two things. One is, you have to consider also, let's say, the seasonal softness in Q3, where there's less fixed cost leverage that we have in the system. If you remember in 2018, we guided for a contribution margin of better than 25%, then came out at 27%. For this year, we guided at better than 27%. There's probably a bit of room of upside to that as well. I would say there is probably some upside. On top of that, we also have to provide for basically a softer margin quarter, seasonal margin quarter in Q3 typically. We are ramping up a number of new businesses further as well, which we have to provide for.
On your second point, IFRS 16 impacts the impact in Q1 and it's going to be similar in the subsequent quarters this year is round about one point. One margin point on the EBITDA level. On the EBIT level, there's hardly any impact.
Yeah. Great. Thank you very much.
Dear ladies and gentlemen, a reminder, if you would like to ask a question, please press zero one on your telephone keypad now. As far as there are no further questions, I hand back to the speakers.
Thanks everyone for attending the call. We look forward to catching up with you over the next couple of weeks and then to welcome you back when we have our second quarter results. Have a nice day everyone. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.