Dear ladies and gentlemen. Welcome to the HelloFresh SE Q3 2018 results. At our customer's 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 difficulty hearing the conference, please press star followed by zero on your telephone for operator assistance. May I now hand you over to CEO, Mr. Dominik Richter, who will lead you through this conference. Please go ahead, sir.
Good morning, everyone, a warm welcome to our Q3 earnings release call. I'm joined by my colleague, Christian Gärtner, CFO of HelloFresh, who will give an update on our Q3 financials and the outlook for the rest of the year at the end of the call. Before that, I wanted to share a few highlights around Q3 and around how our strategic initiatives are faring. In general, the call will be a little shorter in duration than the last two calls that we did, given that we'll also be hosting our capital markets day today in our London offices, where I know that we'll be joined by some of you. In those sessions later today in our offices, we'll have a lot more deep dive in content and knowledge sessions.
It's going to be our first capital markets day. It pretty much marks the anniversary of HelloFresh being a public company. It's been quite an incredible year for us. As we start, we wanted to reflect a little bit how we have fared against the goals that we have communicated at IPO, really give you a heads-up how we're trading against those. If you turn to page two, you see that there were five goals that we outlined at the time of IPO. I want to go through them one by one. First of all, on revenue growth, we expected and projected revenue growth of about 30% year-on-year on the back of our strong 2017 results. That's what we guided you towards. That's also what broker consensus saw us at.
If you look at how we have performed over the course of the first three quarters and how we're projecting Q4 to turn out, we'll be at more than 10% higher than expected by broker consensus at the time of IPO. Secondly, not only did we already show segment profitability in Q4 2017, we even had our first break-even quarter for the whole company in Q2 2018. If you exclude the Green Chef acquisition that we just did a few weeks earlier than that. That's a whole six months earlier than what we had anticipated, was mainly due to the really strong underlying margin performance and margin improvements that we saw in both international and our U.S. business. Thirdly, at the time of IPO, there were a lot of questions around the performance of our international segment.
We had just gone through a transition where we transitioned quite a lot of our manufacturing sites and fulfillment centers to new sites, we're just slowly ramping them up again. One year later, we have shown more than 50% year-on-year revenue growth and are actually headed for full year EBITDA profitability in our international segment. Quite an incredible achievement that only a few people would have thought we'd be able to make happen. Fourthly, at the time of IPO, we communicated that we'll be assuming market leadership in every market we operate. We did that much earlier than anticipated in the first quarter of 2018 already in the U.S. market. Then just recently, with the acquisition of Chefs Plate, we're now also very clearly the market leader in Canada, the only other market where we hadn't assumed the number 1 position so far.
As of now, 12 months after the IPO, we're really sort of like number 1 player in each and every market that we operate in. Finally, what we also articulated is that we would opportunistically invest in long-term growth drivers if we saw a clear strategic rationale and high ROI. We have actually identified a few of those over the last couple of quarters. Among others, we launched a new geography. We did two add-on M&A deals at pretty attractive valuations, we started to massively increase the total addressable market for our meal kit business. If you look at those five goals, then I think one year later, we're fundamentally very happy how we have done over the course of that year. We have really set out and over-delivered on all those five goals that we had communicated at the time of IPO.
Now let's focus on Q3, I wanted to share a few highlights before we deep dive into the financials. Q3 was probably the most exciting quarter from a strategic angle because, after many positive trials, we finally broadly launched into a three-brand strategy in the U.S., thereby massively increasing our total addressable market. First results are really encouraging, we think it's very much the right thing to do. It's something, especially around the price testing, that we've been doing for a long time, where we also had a lot of initial data and a lot of experimentation data from other international markets where we had either hiked or dropped prices before.
So far it has really turned out exactly how we thought it would turn out with encouraging initial results. We also launched in New Zealand, a very attractive consumer market with fairly high price points, it's the 11th country that we're active in. Finally, we assumed market leadership in Canada by actually acquiring one of the early competitors on the Canadian market, Chefs Plate. With Chefs Plate, we're actually following a similar strategy to the U.S., having two very attractive brands attacking different segments of the market. That's what we think will be the winning strategy, both in the U.S. as well as in Canada. Q3 also marked yet another quarter of strong revenue growth. In total, we came out at EUR 302 million in revenues. That actually translates into a year-on-year top line growth of over 40%, to be exact, 41% on constant currency.
Finally, but most importantly, we also made big strides towards improving our underlying EBITDA margin. International segment is firmly on track for a positive full year 2018 adjusted EBITDA year-on-year. We see some near-term drag from profitability through the initiatives that we launched over the course of Q3. If you actually look at the core businesses, international core business and our U.S. core business, then you'll see that we have materially improved our underlying margins and are very well on track for 2019 profitability. After the strong operational performance in the first year of a public company, where do we go from here, and how are we actually gonna continue our growth strategy long term? It's really sort of like growth strategy 101 that we're pursuing across four different vectors. The first vector is TAM penetration.
If you look at how much upside we still have in terms of how many consumers have tried meal kits and how many consumers are long-term meal kit users, then this will continue to be a very, very big growth vector for HelloFresh in the existing markets where we're in. Acquiring new customers, reactivating lapsed customers, that's going to be a pretty big growth lever for the next years to come. Secondly, TAM expansion, and TAM expansion comes in two different ways. It comes through product and price differentiation, think Green Chef for product differentiation and EveryPlate for price differentiation. Mainly what we've been doing in the U.S., and it also comes through geographic expansion. That's the avenue that we've been pursuing mainly in our international segment.
Using the playbook that we have created over the last couple of years in launching 11 markets and selectively going after other attractive geographies. That all falls under total addressable market expansion and is the second vector. Thirdly, it's about better monetization of our customers. We have a large number of customers that, compared to their overall food budget, still only spend a small portion of that with us. Actually creating solutions, how they spend more of their food budget with HelloFresh, how we can provide more value to them is something that we have started doing and something that will become increasingly important over the next couple of years.
Finally, we do believe that we have created a lot of capabilities within HelloFresh and using those capabilities to starting up new verticals in some of our existing markets where we already have large consumer bases, is another growth vector that we will be pursuing selectively. In the past year, we've mainly done that across three projects. One was the retail launch in the U.S., another one was the HelloFreshGO launch, our B2B offering on the German market. Finally on the U.S. market as well, we've been launching Go Ready Made, a ready-made business that also is direct to consumer and offered in a subscription only setting. To sum up, growth in 2019 and beyond will really be derived from those four growth vectors.
It's increasing TAM penetration, expanding the TAM that we can be serving, better monetizing our customers, then using the capabilities and the qualities we have within HelloFresh to actually launch adjacent verticals. All of that by wise balancing growth and profitability. As Christian will tell you later in the Capital Markets Day, there is actually a very clear correlation between the growth momentum we see in markets and the maturity of markets and the underlying EBITDA profitability that we're achieving. Turning over to our financial results. First of all, let's have a look at revenue. If we look at revenue on a group basis, we increased revenue on constant currency basis by over 40% year-on-year. That was driven by both the international segment and the U.S. segment. U.S. in 2017, saw very strong quarters in Q3 and Q4 last year.
We have continued to actually sequentially do very well in our U.S. business, that came out at 30% year-over-year, Q3 growth in terms of revenues. In our international business, we did even better. Coming from a Q3 2017 that was compared to the U.S. Q3, probably not as strong, but still doing pretty well in 2017 after a hard first half of the year. We've actually kind of did very well this year increased revenues by over 50%, 54% to be exact, to EUR 132.3 million in revenue. Good morning, everyone. It's Christian here, and I would like to take you through our margin development in Q3 first, and there start with the development of our contribution margin on slide seven of the deck. In Q3, we managed to expand our contribution margin year on year by 2.7 percentage points.
That expansion was primarily driven by savings that we've realized on the COGS side. Further procurement efficiencies and better menu planning were the key underlying drivers of this. Q3 is another quarter for the year where we've managed to maintain our contribution margin well above the guidance we gave out for this year, which was above 25%. Next, I would like to discuss the development of our EBITDA margin in Q3 on slide eight. We managed in Q3 to maintain effectively our EBITDA margin stable to the same period last year with around about 8.6% negative for that quarter. That's despite the strategic initiatives that we've launched or ramped up during the third quarter of this year. On one side, the contribution margin expansion that we just looked at of 2.7 percentage points has helped our EBITDA margin.
On the other side, we invested somewhat more pronouncedly seasonally in September in our back-to-school campaigns in marketing, as well as that we had the incremental spend from these new strategic initiatives coming through now as of Q3 this year. In G&A, sequentially, G&A is broadly flat to what you've seen in Q2 this year. However, year on year it's up and the core driver for that is what we had discussed in the past, i.e., our investments in our tech teams, in our tech infrastructure. Having said that, you should expect that right now is probably peak in terms of growth in those areas. For the coming years, you should expect that growth is gonna somewhat slow here on the growth of our tech investments. To summarize Q3 from an EBITDA perspective, certainly, somewhat of a transition quarter for us.
Nevertheless, ahead of consensus expectations as well as for Q4, you should expect already a markedly better EBITDA, so better than negative 5% in the coming quarter. With that, let me talk on the next slide on page nine, a little bit about the financial impact of those strategic initiatives that we are implementing this year. Later today, by the way, at our capital markets day, I also want to take you through in a bit more detail about payback periods and ROI that we see in some of these core initiatives. Coming to the near term, EBITDA drag of these initiatives, we've plotted them on slide nine of the presentation, and we've grouped them into three buckets. Green Chef alone creates a drag of somewhat north of negative EUR 10 million on our EBITDA for the full year this year.
Same when you take the price reduction in our U.S. business and the ramp-up of our value plan in the U.S., EveryPlate together, they together also generate a negative EBITDA this year of north of EUR 10 million. Lastly, our new verticals as well as our new markets, New Zealand namely, create a drag as well of north of EUR 10 million. When you take all of that together, we expect for the full year a negative EBITDA impact of these strategic initiatives of somewhat north of EUR 35 million for the year. Having said that, nevertheless, we should not forget the quite encouraging profitability development that's underlying our business and that's well illustrated in our international segment. I'd like to touch upon that on the next slide, on slide 10. We see effectively that for the first nine months of this year, we generated a positive
EBITDA margin in the whole of our international segment of 1.4%. Given that in Q4, we also expect a positive EBITDA in that segment. This year will mark the first year where we are EBITDA positive in the whole of the international segment for the full year. With that, let me drill a little further into the performance of our segments, then coming back to our U.S. segment on the next slide, on slide 11. Active customer growth year-on-year, quite robust of 33% to around about 1.1 million active customers in the third quarter. Just to remind everyone, the third quarter typically is the softest quarter for us from a customer growth perspective. You should see robust growth also in Q4.
Average order rates stable to slightly down in the third quarter of this year, average order value in constant currency slightly down year-on-year, and somewhat more pronounced down sequentially versus Q2 this year. What you see coming through here are effectively the results of some of the strategic measures, i.e., the price cut in the U.S. that we had implemented in September, as well as the ramp-up of EveryPlate. Revenue growth following growth in active customers, so up around about 30% year-on-year in the quarter. Contribution margin up by 1.8 percentage points to 25.8%. EBITDA margin somewhat below the level that we had in the same quarter last year. In Q3 this year, a negative 10.7%, primarily due to our strategic investments.
However, for Q4, you should expect that EBITDA margin also in our U.S. segment is already going to be markedly better than what you have here in Q3 this year. Coming to our international segment on slide 12. Active customer growth stay strong of around about 60% year-on-year to around about 780,000 customers in that quarter. Average order rate somewhat down. It's primarily driven by the meaningfully higher growth that we're experiencing now this year. Average order value in constant currency up quite a bit year-on-year. Drivers for that are twofold. Number one, we effectively successfully rolled out a number of these upsell options that we launched previously in the U.S. We brought those now to our international markets as well. On top of that, you have some mix effects. Mix effects in between the countries which make up this international segment.
Revenue growth following growth in active customers, also up by close to 60% in constant currency. Contribution margin up quite significantly to 26.5%. EBITDA margin positive for the quarter of 1.2% and for the first nine months, as we had looked at on the previous slide, of 1.4 percentage points. With that, I would like to conclude with our outlook for the full year, I would like to reconfirm the outlook that we had given you previously. Revenue growth for the full year on a constant currency basis, excluding Green Chef, of 32%-37%. From a contribution margin perspective, we continue to feel very comfortable with the guidance that we had given before. To deliver contribution margin well in excess of the 25%. That's it to our presentation, I would open up to questions.
Thanks, Tim. We will begin our question and answer session. If you have a question for our speakers, please dial 01 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 is your turn to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have received the first question from Ms. Nizla Naizer, Deutsche Bank. The line is now open.
Hi, everyone. Thanks for taking my questions. I just have three, if I may. The current revenue run rate year-to-date is around 41% organically, as you mentioned, you've maintained your revenue guidance for the full year. Do you think that the guidance is a bit conservative given the year-to-date performance that you've seen thus far? That's my first question. Secondly, in terms of developments in the industry, you've seen your peer in the U.S. talk a lot about on-demand delivery and their retail tie-up. Could you just give us some color on how you view the market progressing and whether you think this would be the future of meal kits going forward?
Lastly, in terms of the EBITDA losses for the quarter, could you help us isolate if you hadn't spent on the strategic initiatives in Q3, what the underlying EBITDA losses may have been for the group in terms of what the underlying margin may have been in a steady state without those strategic initiatives. Thanks.
Great. Morning, It's Christian here. Let me take maybe your question number one and three, and then Dominik is going to talk about your second question. On the revenue guidance, you have to recall that we basically gave that guidance initially excluding Green Chef and stick to that to basically be consistent. The slightly north of 40% growth you've seen in that quarter is including Green Chef. Excluding Green Chef, growth for the group is somewhere mid-30s, and therefore the guidance for the full year still makes sense. However, with the little caveat that we're obviously less than half through the fourth quarter, you should expect that we're well on track to be towards the upper end of that guidance.
On the EBITDA impact of those new initiatives for Q3 alone, that's roughly EUR 12 million-EUR 13 million EBITDA drag for them just in Q3, that's caused by these new initiatives, i.e., if you were to exclude that from our EUR 26 million negative EBITDA that we have recorded, you would be somewhere around EUR 13 million negative or so for the quarter. Let me chime in here for your question regarding on-demand offerings and where the industry is going. I think what I tried to lay out before is that for us it's mainly four growth levers that we want to pursue on a macro level: TAM penetration, TAM expansion, better monetization, and adjacent verticals. I'd say we look at that space interested.
There are some of those things where we also want to sort of keep optionality, and kind of see how things are going and sort of have our own impressions of how the space is faring. I think it's fair to say that it's not core of our growth strategy going forward. Core of our growth strategy going forward is really what I laid out before. On-demand offerings, we do think that in terms of their scope, they're just not an opportunity that is as exciting as some of the other opportunities that we have.
Great. Thank you very much.
Thank you. There are currently no more questions. As a reminder, if you would like to ask a question, please dial 01 on your telephone keypad now to enter the queue. We have received another question from Mr. Jojo. Please go ahead. Your line is now open.
Hi. Morning, everyone. Just a quick one on kind of any early signs you've seen from some of that strategic investments you've made, particularly with regards to kind of the back-to-school campaign. As you mentioned, you've kind of seen six weeks of the fourth quarter. If there's kind of any kind of encouraging green shoots that you have seen from that.
July and August, so Q3 kind of like was a little bit sort of like two-fold, right? July and August, historically for us, months in which we don't spend a lot on marketing, and also where we see very low active rates among our customers as they're on summer holidays and as they're kind of like spending more time outside. September had been off to a really great start for us, so we've been going with the good momentum into the fourth quarter. Part of that momentum was certainly driven by the fact that we had decreased prices. The good thing about prices, or the complex thing about prices, is that it moves a lot of different levers. Reduced prices always help us to acquire more customers at very attractive prices.
On the other hand, as you all know, the obvious thing is that there is also a short-term margin drag. That has been kind of very much in line with what we had expected and what we had seen from actually exposing customers already for the first half of the year to some of those low prices before and tracking their behavior. Overall, I think it's very much in line with what we thought it would be, and that is mainly due to the fact that we didn't do that without testing it before. Quite the opposite. We had tested it, and we are constantly testing what the ideal price level is for our products in all markets where we're active in.
Okay. That's great. Just a quick comment in terms of kind of the margin delivery for the Q3. I guess with some of the kind of strategic investments, I was expecting a bit more de-leverage on contribution margins and leverage on the SG&A side. I don't know whether this comes down to kind of the timing of the after-school and EveryPlate being kind of back-end loaded. Do you expect the shape of Q4 to be a bit kind of stronger on the marketing leverage, and a bit more de-leverage on the contribution side?
Partly, yes. What you should expect for Q4 is certainly some leverage on the G&A side. I agree with you on that. Partly offset basically by still some of the growth in primary tech that I had mentioned before. From a contribution margin and EBITDA margin perspective, you should see an expansion or should expect an expansion on both levels sequentially versus what you've seen in Q3. That's partly driven that a number of those customers we then acquired in September, they are now nicely ordering our boxes, and we see that coming through on the margin side as well. On top of that, you basically have a more balanced quarter with Q4 overall, where we don't have these tricky July and August in there, where there's overall less fixed cost leverage, which typically weighs on our contribution margin, therefore, EBITDA margin as well.
Has this answered your question, sir?
Yes. Great. Thank you ever so much.
Thank you. More questions. As a reminder, if you would like to ask a question, please dial zero one on your telephone keypad now to enter the queue. There are no more questions. I hand back to the speakers.
Thanks a lot for attending our Q3 earnings release call. We hope to welcome a lot of you for our capital markets today. If you're in London, we'll be hosting a number of deep dive sessions, both on the U.S. and the international segment, a strategy update, and some deep dives on our marketing and sustainability campaigns. I think it's going to be a lot of exciting content that we'll be providing, and we hope that some of you make us happy with your attendance. Thanks a lot. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.