Good morning, welcome to our first quarter earnings results call. It's only the third time that we have an earnings call since IPO'ing the company in November 2017, but we have a much longer history of reporting our numbers. Given that we only recently IPO'd the company but have been reporting our numbers for every quarter since the beginning of 2015, it definitely seems like a much longer track record that we've been able to build up. If I can turn your attention to page three, that's the page that shows our competitive positioning across all our markets that we operate in internationally. We have two segments, our U.S. segment and our international segment, and in both those segments, we now command the number one position. In Q1, we commanded for the very first time the market leadership position also in our U.S. segment.
We've been doing that for much longer time in our international segment. It's definitely been a very strong signal for us internally to see that less than five years after entering the U.S. market, we've now taken over the number one position by every measurable metric in the U.S. market, by customers, by meals served, and also by revenues. The picture is equally positive in international, where we maintained or expanded our market leadership position and generated about 40% of our growth revenues, with fairly limited competition in those markets. In terms of headline KPIs in the first quarter, we served around 48 million meals to our customers worldwide, which constituted about 60% year-over-year revenue growth in constant currency to about €1.2 billion or $1.5 billion U.S. in annualized revenue run rate. In euro-denominated currency, that yielded still 44% of revenue growth.
Compared to one year ago, we suffered from the strong dollar. Just to remind you, given that we operate in 10 countries with very different currency environments, we believe that the fundamental performance of our business, the fundamental performance from operations, is best judged by looking at constant currency numbers. If you turn over to page four, we broke down some of the key trends that we observed in the first quarter. Our active customers massively increased from 1.45 million in the fourth quarter of 2017 to 1.9 million in the first quarter of 2018, which constituted about a 30% quarter-on-quarter, so not year-over-year, but quarter-on-quarter active customer growth. Q1 for us is always seasonally the best time to acquire customers, and in the first quarter of 2018, we definitely took advantage of that advantageous seasonality.
Revenue growth is quoted exclusive of Green Chef, given that we only closed the transaction towards the end of Q1 and integration of the business only started in April, so will only show up in our Q2 numbers, and we only have limited knowledge of how that integration will eventually turn out, but very positive early signs. If you look at the two segments, across the two segments, we saw an equally strong performance. Our U.S. segment grew 73% in constant currency year-over-year, and our international segment also had the strongest quarter in terms of growth over the last 18 months with 42% year-over-year growth. The picture on margins is equally positive. Our contribution margin expanded by about six points year-on-year to over 26%, the highest contribution margin that we've ever shown.
Also on our EBITDA margin, we saw a seven-point improvement year-over-year to now -7%. On that metric, in the first quarter, our marketing spend is seasonally elevated. You'll see the counter effect of that elevated spend in the massive increase in active customers that we saw in the first quarter, that's exactly in line with our plans. Our plan has always been, and will probably continue to be for the coming years, that in the first quarter, we fork out most for marketing as we acquire customers that then deliver revenue and deliver contribution margin over the entire year. The first quarter 2018 was also the first quarter in which we delivered positive cash flow from operations. We generated €6.6 million, and it marks the first quarter in history for HelloFresh where we've seen positive cash flow from operations.
That leaves us with a very strong cash position. Cash position as of the end of Q1 was €331 million plus an undrawn revolver facility of €30 million. As I just indicated, positive cash flow from operations got us to that very strong balance sheet position. Taken all together, we're very happy with the performance that we saw in the first quarter, we see ourselves well equipped to deliver on the remainder of the year. To page five. You'll see that we had a big jump in active customers in Q1. If you compare that to previous years, you see that this is more or less in line with what we've seen in 2017 and also in 2016.
The shape of active customers is also expected to turn out pretty much the same as in previous years, with a big increase in the first quarter, then softer increase over the course of the year, given that seasonality is not as advantageous in the other quarters as it is in the first quarter. Q1 in our business tends to set the pace for the year. Hence, we're quite happy with what we have delivered with 30% quarter-on-quarter active customer growth. If you turn over to page six, you'll see once again that both segments grew very strongly, which yielded about 60% revenue growth in constant currency. Constant currency is fundamentally how we did in our operations, hence the best metric to judge us.
Also in euro-denominated currency, a 44% increase is something that we're quite proud of, which we believe will set us up well for the remainder of the year.
It's Christian here. With that, I would like to discuss in a little bit more detail the development of our margin profile. First, let's have a look at the development of our contribution margin on page seven. The contribution margin level, we expanded our margin year-on-year by 5.8 percentage points, versus Q1 2017. Those 5.8 percentage points expansion have been derived by expanding or further saving procurement efficiencies of 3.1 percentage points. On top of that, saving 2.7 percentage points in fulfillment. The key contributors to that were production, so our picking and packing operations, as well as packaging. For Q2 this year, you should expect that we will be able to at least maintain that very healthy margin level to slightly expand from that 26 percentage points level. With that, let's have a look now how our EBITDA margin has developed.
Our EBITDA margin year-on-year has expanded by a full 7.1 percentage points to 7.3% negative in the first quarter of this year. This 7.1 percentage point expansion comes, number one, from the expansion of the contribution margin that I've just taken you through. On top of that, we saved around about three points on marketing on a relative perspective. As Dominik had taken us through at the beginning of this call, Q1 is for us the best and most healthy quarter to bring in a lot of new good customers to our service and product. Therefore, we spend quite robustly on marketing. That's something that then somewhat normalizes during the course of the remainder of that year.
What you should expect from us in Q2 is basically a further meaningful expansion of our adjusted EBITDA margin as we see marketing as a percentage of revenues to basically go back further and basically contribution margin to stay where it is to slightly expand further from that level. That trend that we see in our business continues to make us comfortable that we will reach EBITDA breakeven in Q4 this year. That again, is before the impact of our recent acquisition of Green Chef. To summarize from a margin perspective, very robust trend and very robust development that we've seen in our business. I'd like to spend now a minute to discuss our cash flow and liquidity position on slide nine.
From a cash flow perspective, Q1 2018 certainly marked a milestone in our business because it's the first quarter where we've generated positive operating cash flow of EUR 6.6 million. Why was that the case? Effectively, we experienced, as some of you know, very beneficial net working capital trends, especially during periods where we grow strongly as we've done in the first quarter. Therefore, that cash inflow from net working capital has more than offset our negative EBITDA in that first quarter, and therefore helped us to generate those EUR 6.6 million positive operating cash flow. Separately, when we look at our cash position on the balance sheet, we ended the quarter with a very robust cash position of EUR 331 million. That's already after having paid for the acquisition of Green Chef Which closed towards the end of March this year.
On top of that, we have around EUR 30 million of undrawn on an undrawn revolving credit facility available to us if we wanted to use that. Let me now come to an update on our guidance. Based on the robust development that we've seen in our business in the first quarter, we feel comfortable to increase our revenue guidance from previously 25%-30% revenue growth for the full year on a constant currency basis to now 30%-35 percentage points. Again, on a constant currency basis and before taking into account Green Chef. We've shifted our revenue guidance effectively by five points upwards on both ends. Green Chef is expected to contribute from this quarter, so from Q2 onwards, around $15 million each quarter for the remainder of the year.
Our guidance from a margin perspective stays unchanged to what we communicated before. On a contribution margin level, above 25% contribution margin, and on adjusted EBITDA basis, we want to reach break-even in Q4 this year. Again, before the impact of Green Chef. With that, I would suggest that we pause here and look forward to take your questions.
The first question is from Robert Berg. Your line is now open.
Yeah. Thank you. A couple of questions from me. The first question is on the guidance, very quickly. Obviously, 60% constant FX growth in the year. I remember Q1, sorry, Q4 year, you mentioned you like to be prudent with the guidance. Is that the same now? I'm just wondering why the kind of deacceleration through the year. The second one would be on the guidance, if you're growing faster and keeping your EBITDA the same, are you investing the money back into marketing? Would that be a fair assumption? The third question on Green Chef. Dominik, you mentioned a positive start to the integration. Could you give any more details? I appreciate it's super early.
Would love to hear whether there's anything you've seen in the business, that it's maybe a better asset than you thought, how you're thinking about the integration, and if that's running ahead or in line with your expectations so far. Thank you.
Robert, it's Christian here. Maybe I can take your first questions regarding guidance. That 30%-35% revenue growth on a constant currency basis is really our best perspective on how we think the year will shape up for us. It is a meaningful upwards lift versus to what we had communicated before. It's the right guidance at this point of the year. You're absolutely right. In Q1, our revenue growth was above that range. For Q2, you should expect that we're at least towards the upper end of that range. As we have outlined before, the dynamics of our business are that the bulk of our growth in customers and, therefore, also revenues, we basically realize in that first quarter, and hence the guidance is in line with that.
On Green Chef, certainly you're right, Robert. It's early days. I think so far we've seen a number of very positive signs. We identified a lot of savings potential and growth potential during our due diligence phase. I think now that we have started with our integration plan round about beginning of Q2, we've seen that a lot of those assumptions and findings in due diligence were actually true. We do believe that especially across metrics such as shipping rates, packaging, procurement, we have not only identified but can introduce savings to the Green Chef business quite meaningfully. We can also support them by integrating them onto our growth marketing platform, which I think is certainly at a fairly different level than to what they've been working with so far.
While we will be focusing on improving the underlying margin profile in the upcoming months, we will certainly start investing into growth in the Green Chef business once we do feel that a lot of the saving initiatives that we're driving right now will have materialized so that we can drive growth at a much better margin profile than what we have found before taking over the Green Chef business. Generally speaking, I think what we have definitely realized from this due diligence, but also from communicating with other businesses in the market, is that we do believe that over the last couple of years, we've built up huge expertise in many different areas of the business.
An expertise that is not only driven by scale, but certainly also driven by scale, and that will allow us to meaningfully drive forward a business such as Green Chef. Given where we are today, we do think that everything that we had assumed during the due diligence, we do not see any reason why that should turn out different to what we had expected.
Brilliant. Thanks, guys.
The next question is from Marcus Diehl of Morgan Stanley. Excuse me, JP Morgan. Your line is now open.
Hi, it's Marcus here. Just two questions. Dominik, could you talk a bit more about also the international operations? Clearly, a very strong set of results in both U.S. and international, but is there a bit of more clarity what markets performed particularly well in international as well? That would be quite helpful. Secondly, on the cohort developments, clearly, in the IPO and also after that, we see a lot of information that the payback actually reduced. The time period of payback reduced significantly now to 12 months. Is that still the case? Have you seen any further improvement in that area? That would be quite interesting as well. Thank you.
On the international segment, we don't detail out in more granular detail the respective markets that we have. I think a fair assumption is that across the board in all our major markets, we saw very good development. If you remember last year, same time, Q1 and Q2, we had a set of weaker results in our international business that was mostly driven by the fact that we ramped up our fulfillment facilities. I think a direct consequence of ramping up those fulfillment facilities has been that we broadened our product portfolio. That has really been what has been driving the growth in the fourth quarter already, but also now in the first quarter. A much better infrastructure that allows us to really innovate on the product portfolio has allowed us to reinvigorate growth in the international markets. That has really happened across the board.
It's something that we're quite happy with because obviously all those major transitions from one fulfillment center to the next always brings a certain level of risk with it. Overall, looking back over the past year, we think we've done the right decisions, and we've also ramped them up at the right pace to end up in the situation where we are right now. On cohorts, and particularly on payback periods, what we have experienced is that over the last couple of years, we have significantly improved our margins. We've also brought down our customer acquisition costs and, across all markets, kept retention broadly stable. That has resulted in much faster payback periods than what we had two years ago. Right now, we're actually operating significantly under one year of payback periods.
If you look at the most recent cohorts of the last 12 months or 18 months, that time period is significantly under one year. It's somewhere between six and 12 months, depending on markets and depending on margin profile. We do believe that going forward, we will keep that at the level where it is right now or even increase it to really go up to levels that are not only market leading but industry leading or category leading.
Perfect. That's clear. Thank you.
The next question is from Andrea Slaw for Morgan Stanley. Your line is now open.
Hi, good morning. This is Andrea Slaw. I have two questions, please. The first one is, in the U.S., great performance, and now you're sort of a leading player over there. Are you seeing now any change in the number of customers that might be migrating from Blue Apron to yourself? Is that stable? Do you actually have any visibility on that? The second question is just following up on the guidance question, because clearly you point out that 1.9 million active customers is a great number. It implies 60% growth year-over-year in Q1. It would imply 30% year-over-year growth over the fourth quarter. Unless your revenue per active is about to go down, you would think that your guidance indeed looks very conservative. I was wondering if there's just anything else that we might be missing. Thanks.
On the U.S. competitive positioning, I think for us, the opportunity is much, much broader than going after the same set of customers that have been customers or consumers of other meal kit services. I think what we still see is that in terms of category awareness and brand awareness, there is a lot of ground to gain for us. We're not so much focused on competitive advertising or positioning ourselves against any other meal kit service. We're much more focused on really expanding the category overall. I think if you look at market research sets and just overall market numbers, never in the company's life or never in history have more consumers eaten meal kits than now in the first quarter. That is largely driven by our growth, but also of the growth of other meal kit services.
I think overall, the meal kit industry has really, over the last three years has grown so dramatically and has proven to be the go-to source or default service for many customers, that we believe our focus should be much more on expanding the overall market and making sure to double down on all the trends that are shaping that development of the market than by engaging in overly competitive positioning in advertising or anything like that. You won't see that from us, and that's also not what we feel is the biggest opportunity. Hence, we're very much focused on communicating the benefits of eating with meal kits overall and of making sure that people see that we are, by awareness, the number one player in each market because we do believe that the number one player always takes on more share proportionally to the overall category development.
That's really the focus of all our marketing and advertising activities.
Andrea, on your other point where there's anything else mentioning regarding around the guidance, not really other than seasonality, which you know well. As you know, we are approaching now the summer periods. That's when a lot of our customers are then taking their two-week summer holidays and pause during that period. It's also less efficient then around that holiday period to bring in a lot of new customers but that's the same, let's say, development and seasonality as we've discussed in the past. There's nothing special to that.
You wouldn't expect actives to go down for whatever reason in the next couple of quarters, right?
Our active customers, no. To stay broadly at that level that you've seen from us at around the 1.9 million that we had in the first quarter.
All right, thanks.
The next question is from Nizla Naizer of Deutsche Bank. Your line is now open.
Great. Thank you very much. Just following up on the competition question as well, Dominik, could you just give us an idea of how you look at the larger U.S. retailers venturing into the meal kit space and whether that could prove to be something to be wary of going forward, just to get an understanding on how you look at that news, because that's taken up a lot of our discussion time as well in the past. Secondly, on the automation plans, could you just remind us where you all stand in terms of investing that amount you said you would in terms of automating your fulfillment centers and what the CapEx outlook is like for the year? Does it stay unchanged?
Thirdly, on the customer acquisition costs, since we've heard your competitor in the U.S. talk about stepping up their marketing activity a bit, just wanted to get an understanding if things have changed in terms of how you need to spend on customer acquisition following on those remarks. Thank you.
Sure. On the advances into retail by some of our competitors or more broadly retail activities by U.S. retailers, I think that's nothing new really. I think we've been seeing retailers both in the U.S. but also in international pondering with the thoughts of either launching a product or having launched a product for the past two or three years. We actually do have that experience which might be quite new for U.S. players, quite a bit from our international markets. No matter in international markets, whether you talk about Germany, whether you talk about the Netherlands, whether you talk about Belgium, the U.K. or Australia, we have seen those advances by retailers in almost each and every single market. Some of those partnered up with another service, some of those launched their own meal kits.
Overall, we do think that the qualities and the skill sets that you need to launch a very good and highly competitive service is quite different from the skill set that's usually inherent to large retailers. When it comes to procurement, when it comes to the manufacturing parts, but especially when it comes to the part of product development, we do believe that this is something where we are very good at, where we have built up a lot of qualities and skills over the last couple of years, and that is something that is not easy to replicate. Looking at how it's turned out in our international segment, it's that I do not think that in any of our markets any retail activity has really eaten into our market share or has really kept people from buying or purchasing HelloFresh meal kits.
To be honest, we haven't really seen any impact of that and if I look back over the last two or three years, then a lot of those activities which had been promoted heavily in marketing or in the press have actually ended and a lot of them have withdrawn. In that sense, I do think that retail can be a nice incremental add-on revenue stream that has an attractive margin profile. I don't think that it can ever take up a large part of the category and I do believe that our focus on a direct-to-consumer model will always drive the largest part of our activities. We have tried out our retail offering ourselves for quite some time. We've actually been one of the first in the overall space who has tried it out.
We do believe that we have a pretty good idea of what are the drivers of a successful product. We will selectively think about rolling that out or partnering up with retailers as an additional distribution platform. Just in terms of the size of the revenue opportunity, we do believe that the major part of our future revenue growth and revenues will always come from the direct-to-consumer business, because we very much know that we can offer a much better product portfolio offering and service levels on the direct-to-consumer route.
It's Christian. Just to follow up on your other question on CapEx and automation. Just to recap what we've said in the past. We said in the past that we intend to spend over up to around about EUR 60 million until the end of 2019 on CapEx, where the bulk of the spend goes basically into modular automation or semi-automation solutions in our fulfillment centers and that is still unchanged. What you will see from a timing perspective is that CapEx you will begin to see that in our numbers probably from Q4 this year onwards, then the remainder of it basically distributed across 2019.
Does that answer your question, Nizla Naizer?
Yes. My final question was whether you've seen a change in the customer acquisition costs dynamic after your competitor in the U.S. said that they're stepping up marketing spend.
The answer is no. We achieve very robust customer acquisition costs. If anything, that trend has been beneficial to us over the last couple of quarters, including that Q1, i.e., at the margin, those customer acquisition costs become less for us than what they've been a year ago or two years ago for us.
Great. Thank you very much.
There are currently no further questions. As a reminder, if you would like to ask a question, please press zero one on your telephone keypad now. We have a follow-up question from Nizla Naizer.
Yes. If I may, just if Dominik and Christian, if you can remind us, are there any new ventures or any new initiatives that y'all have undertaken over the course of 2018 that are either doing well or you think could meaningfully contribute to revenue in 2018? Just give us an understanding of what's next and exciting in HelloFresh. That would be great. Thank you.
I think generally speaking, we do have a team that is fully focused on innovation, both in the core products as well as off core products, so in new verticals. I think we've made some good progress both on the core products and broadening our proposition in the core products, as well as with some tests and trials that we've been running off our core products. Will they contribute meaningfully to 2018 revenues? That's probably not. Still those are initiatives that we are kickstarting now or have kickstarted over the last six to nine months, and where we do think that they will contribute to revenue in 2019, 2020, 2021.
Just looking back at our own history, I think starting HelloFresh and the meal kit vertical in late 2011 and then scaling it up, you'll see that especially in the beginning, there's a lot of focus on product market fit, on really understanding customer needs, on really understanding margin profiles, both when you start out a new vertical as well as if you scale it up and where it could eventually end up. Hence we've been much more focused on really proving out our hypothesis than on scaling up and on putting money or customer acquisition expenses behind driving that up. Right now it's all about finding the right products and finding the right initiatives that we will then power forward in the coming quarters.
I don't want to give you a lot more detailed information on that, given that it's still on a very early stage. We're very much focused. I think that's the bottom line. We're very much focused on really making sure that we have a constant pipeline of innovation and that we start very early in also venturing out into new areas, into new services to make sure that we can continue our pace of revenue growth also in the outer years, and that we can maintain a very high revenue growth profile beyond 2018, 2019 into 2020 and all following years and quarters.
Great. Thank you.
As there are currently no further questions, I would hand back to you, gentlemen.
Thanks everyone for attending our first quarter earnings call. We're looking forward to welcoming you again on the second quarter earnings call. Rest assured, we're very much focused on keeping up the performance that we've shown in the first quarter. I think we do have a pipeline of a lot of exciting initiatives coming up that will show both in the core products and in other verticals in the next quarters. That's what we're very much focused on. Not so much looking left and right, but really focusing on maintaining the number one position in all the markets that we operate in, and iteratively improving all the key metrics and KPIs as we have done on a very continuous basis over the last two or three years that we've been reporting our numbers on a quarterly basis.
Thank you everyone. We look forward to welcoming you back for the second quarter earnings call.
Thanks. Bye-bye