Hellofresh SE

XETRA:HFG

Earnings Call Transcript

[Dominik S. Richter, Group CEO & Member of Management Board]

Good morning, ladies and gentlemen. Today, marks not only the day we present our third quarter results for 2021, but it's also the full year anniversary of our IPO, which we successfully completed back on November 2, 2017. And we'll also be celebrating 10 years of HelloFresh in November, which makes us still a relatively young business. So November at HelloFresh, definitely always a month where a lot of things happen.If you actually go back to our IPO perspective or to any of our previous Capital Markets Day presentations, you'll find that we've always been remarkably consistent in how we think about our long-term growth strategy. And while we've operated in very different competitive environment since we started and especially in the last 5 quarters or 18 months and a very difficult operating environment, we've never lost sight of how we think about our long-term opportunities and how we can make our growth flywheel actually spin faster. And that coherence over time is really rooted in our mission that we want to change the way people eat forever. So, 7 out of 10 dinners globally and 5 in 10 dinners in the U.S. are cooked and consumed at home. This really is one of the largest consumer spend categories.And we believe that in the last 10 years, we've already fundamentally changed for millions of our consumers globally, how they actually think about getting a great home cook meal on the table, allowing them to eat better, cheaper and more delicious meals and with traditional alternatives. And what we also firmly believe is that what you're currently seeing is the unbundling of the traditional consumer food budget which for decades has been going primarily to grocers and restaurants with little, little change over time.And we believe we can play a major role when food budgets are being reallocated in the next couple of years away from traditional grocers. And that's also reflected in our vision that says we want to become the world's leading Food Solutions Group. And why we're very bullish on the growth outlook and penetration upsides or the meal kit business itself in our existing as well as in yet to be launched new geographies. We've also broadened our product suite quite massively and the accessible TAM has increased significantly as a result of that.And with the acquisition of Factor laid last year and our Youfoodz in Australia in early Q3 or early Q4, we have firmly committed to also becoming a leading player in the ready-to-eat space. So we really remain laser-focused on the opportunity ahead of us and are committed to play an important role as traditional food budgets get unbundled and reallocated by consumers.Now with that, let's focus more on the near past, and I'll walk you through the highlights of our recent third quarter 2021. First of all, we grew revenues 45% to EUR 1.4 billion in the third quarter. These growth rates in the post COVID environment are higher than almost any other e-commerce player in the U.S. or Europe that we know of and have allowed us to gain further market share. They are also really a great testament to both our strong repeat purchase business model as well as operational excellence.Secondly, we've seen very positive underlying trends in all of our revenue-driving KPIs. So our order rate is actually up 14% compared to pre-pandemic levels and 3% compared to the same quarter last year. Our average order value is up 6% compared to pre-pandemic levels and again, 3% compared to the same period last year, and it now stands at over EUR 51. And we've also been very disciplined around our marketing investments, which are fully under control despite the massive revenue outperformance we've seen on top line.Thirdly, we achieved an AEBITDA, a margin of about 5.6% and the seasonally weakest quarter of the year we have that amounted to about EUR 80 million in AEBITDA. And this level of AEBITDA, combined with strong cash conversion, has allowed us to remain free cash flow positive despite Q3 being -- having been a quarter of significant investments in capacity, in people and in technology.And finally, we have continued to broaden our set of exciting future growth opportunities with the launch of Italy, the second new geography in 2021 and the completion of our acquisition of YouFoodz. Both of them follow a tried and tested playbook. And while they won't have an immediate huge impact on our group numbers right away, they are investments into capturing our long-term growth opportunity to as fullest.Now speaking about those TAM expansion avenues that we've gone down. Italy provides us with an additional 26 million households. So, massively increasing our overall total addressable market. COVID has overall been a huge accelerator for e-commerce in Italy and for online food in particular. We've launched with a tailored Italian cuisine offering a couple of weeks ago with a strong focus on sustainability from day 1, and the market has been launched on time in full and the first customers seem to be really happy and showing great customer satisfaction levels. We're operating that country out of a fulfillment center sites near Milan and with a corporate head office in Milan.Now, YouFoodz is really something where we doubled down on the ready meals business. We've told you about the very encouraging results from our Factor 75 acquisition in the U.S. last year, which has broadened our U.S. total addressable market. And hence, that success has made it an easy decision to actually take over YouFoodz. We will try to introduce the HelloFresh playbook next year and really see this as a multiyear grower in our overall portfolio. The ready-to-eat space really remains a large area of investments in future growth for us. It's now live in 2 of our geographies with dedicated stand-alone offerings, and we have planned over the next couple of years to also bring that to more geographies globally.Now let's come to our revenue build and start at the top with active customers. Active customers increased 39% year-over-year to reach 6.94 million in Q3. That customer growth was driven almost equally in international and the U.S. segment, with both increased at roughly the same rate, 38% and 40%, respectively. As in previous pre-pandemic years, we've dialed back on customer acquisition during the peak summer months in July and August before scaling advertising and resulting active customers again in September for the Back-to-School season, which really marks the start and also for the fourth quarter, which is seasonally a much stronger quarter for us usually.Most of our quantitative and qualitative data points now show us that consumers have resumed a more normal routine after summer. And we believe that the isolated COVID behavior is now mostly behind us, with customers having settled into new routines and picked up learned behaviors again. If you look over the whole year at our 2021 active customer development across the different quarters, then it really broadly follows the same seasonality pattern, you've known from us in the pre-pandemic years with a big jump in the first quarter, slightly down in the third quarter compared to the first quarter. And then, in Q4, we expect active customers to pick up again.The really exception is -- the one exception has really been Q2, which is more technical, where we have carried over a lot of customers from the first quarter to actually have a very high Q2 customer number that we booked in our Q2 results. Our year-over-2 year active customer growth rate is 164%. Like I said, for Q4, we expect active customers to pick up again.Now coming to order rates. We've seen strong fundamentals in the third quarter, with order rates increasing both 3% against strong COVID comps last year when nobody had been taken holidays or vacationing and by even 14% compared to pre-pandemic levels. It now stands at exactly 4 orders per quarter per active customer in our seasonally weakest quarter. I think that's a great achievement and shows that our investments and the customer value proposition, such as a larger menu, better service levels and more competitive pricing have actually been paying off.Average order value has also increased in Q3, even though consumers worldwide have been eating more outside and usually cook less meals at home during summertimes. It's been up over 3% year-on-year and 6% compared to pre-pandemic levels to now EUR 51.3 per order. And the main drivers here were increased take-up of our HelloFresh marketplace items and the tendency to take more meals on average as we've broadened the choice for consumers and now have larger menus in basically all of our geographies.Now, looking at these continuous incremental improvement in aggregate over a longer time horizon. You can see how powerful these actually have become. At the time of IPO so, 4 years ago exactly to the day today, we retained about 20% of net revenue of a cohort after 2 years and a little less than that after 4 years. All of the aforementioned improvements in AOV and order rates, now allow us to retain about 40% of net revenue after 2 years for more recent cohorts. And we project to retain closer to 30% of net revenue after 4 years, driving an almost 50% improvement in CLV to CAC over the past 4 years since we IPO-ed the business.What's even more remarkable is the long-term stability of our cohorts in the outer quarters. So, once the customer finds value in our products, it really becomes a key part of their home cooking routine. And such strong and highly predictable revenue retention is really a key feature of our business model and makes it so much more attractive than general e-commerce.This has also translated into very strong year-over-year net revenue growth of 45%, which puts us significantly ahead in our trajectory of our initial net revenue guidance for the year, which stood at 20% to 25%. Both segments contributed to that strong growth momentum with the U.S. growing 51% year-over-year, and our international businesses growing 38% year-over-year.On a 2-year comparison, it marks a revenue growth of 221%, that basically means we have more than tripled orders, the number of meals going through our supply chain and ultimately, revenues over that 2-year period. And I think that's no small feat given the complex supply chains we run and had to scale in such difficult operating environments during COVID.With that, I'll hand over to Christian, who's going to lead you to the remainder of the earnings call.

[Christian Gaertner, CFO & Member of Management Board]

Thank you, Dominik. Let me kick off with the discussion of our contribution margin. Our contribution margin in Q3 was 22.5%, down year-on-year by 4.2 percentage points. Now, this is a result of 2 factors: one, high ingredient expenses by round about 30 basis points; and secondly, higher fulfillment expenses of circa 4 percentage points, unless unpack those fulfillment expenses development a bit further.Firstly, and most importantly, our ongoing capacity expansion and ramp-up of our recently launched fulfillment centers has a corresponding impact on upfront costs and productivity. This is something that we have discussed over the last couple of months already, and this will stick with us for the next couple of quarters. Impact of that, as discussed in the past, is roundabout versus last year's benchmark round about 2 percentage points of margin. By the way, in line with market, we have also started to increase production wages in certain geographies and are planning to do more of that in Q4 as well as going into Q1 2022.Secondly, we're also back to a more normal seasonality, lower fixed cost utilization during peak summer months, July and August, and from a sequential perspective, higher packaging expenses. Thirdly, compared to last year, we also had to cope with a certain level of price inflation in logistics, including through higher fuel surcharges that makes up round about 1 percentage point of margin.And then lastly, as quite a few of you are aware, there were some special one-off effects that we encountered in Q3, which we do not single out special items. These were namely 2. One, there was a storm damage, hurricane damage to our main factor facility, which impacted business there for 2 weeks at the beginning of the quarter. And then secondly, there were COVID, there was COVID related quarantine for a number of colleagues in production in Australia and New Zealand that impacted both costs and production volume for a number of weeks in Q3. We take both of these events together, they had an EBITDA impact of somewhere mid-teens, euro million, round about 1 percentage points margin impact for the quarter.Now for Q4, without those one-off effects and with a somewhat more favorable seasonality, we target getting back closer again towards the 24% to 25% contribution margin.Let me now turn to marketing. We've been very disciplined in the way we deploy our marketing spend and with that, continue to achieve very strong revenue growth year-on-year in the quarter. We, therefore, managed to maintain marketing as a percentage of revenue at 14.8%, which is meaningfully below the 15% to 17%, we had guided for at the beginning of the year, as you will recall, it also quite a bit below where we've been sitting prior to the COVID period. So going into 2019, marketing expenses were at 20% and above of revenues and now for this quarter, we're at 14.8%. And this is despite us investing robustly into new customer acquisition in September when our Back-to-School period kicked off again.With that, let's have a look now at AEBITDA. We delivered an AEBITDA of EUR 80 million in the quarter. This corresponds to AEBITDA margin of 5.6 percentage points, where Q3 seasonally represents our lowest margin quarter. The compression versus last year is driven by the effects that we just discussed. So round about 4 points from contribution margin and 2 points from a normalization in marketing. When you break that down across our 2 operating segments, you see that both of our segments have contributed pretty equally through that AEBITDA so, each of them generated around about EUR 50 million of AEBITDA in the quarter.Let me now turn to our cash flows. As previously flagged, we have further stepped up our growth investments this quarter to close to EUR 60 million in Q3 alone in terms of growth capex. This means we are on track for our north of EUR 200 million capex investment for the full year. It also means we're well on track with our capacity expansion, where our plan is to more than double by H2 2022 versus the Q3 2020 baseline, as we have discussed in the past.Now despite this meaningful expansion capex, we have again generated positive free cash flow and therefore, further increased our cash position to EUR 955 million at quarter end. Just FYI after quarter end, concurrent with the successful closing of the YouFoodz acquisition in Australia, we've paid AUD125 million for that acquisition round about EUR 82 million that came out of our cash, out of our bank account after quarter end.Let me now conclude with our full year outlook. Most of you have seen that probably we have increased already based on our continued strong growth to date through the end of October, we have decided to further increase our constant currency revenue guidance for the year to 57% to 62% from previously 45% to 55%. This includes round about 0.4% growth contribution from the acquisition of YouFoodz that I just alluded to, given that the transaction closed on October 27th, it will be consolidated in our financials for November and December. Our AEBITDA margin guidance remains unchanged. After the first 9 months, we sit at a 9% AEBITDA margin. And for the full year, it's reasonable to assume that we end up somewhere in that zone.With that, we're looking forward to your questions.

[Operator]

The first question is from Miriam Adisa, Morgan Stanley.

[Miriam Anuoluwapo Adisa, Equity Analyst]

And firstly, just on the contribution margin. I'm just wondering if you could just share more color on sort of what makes you confident to get back to that 24% to 25% level in Q4, given some of the headwinds that you mentioned that happened during the quarter? And you sort of talked about wage inflation increasing since then as well. If you could just sort of give any more color on that, that would be great. And then also sort of any early expectations for what you're expecting next year? I think at the Q2 results, you sort of talked about margins expecting to improve in the second half and clawing back some of that 200 bps of fulfillment costs. So would you still expect that to be the case? Or do you expect some of that pressure to remain in the second half of next year? And then finally, if you could just talk a bit about the contribution from the add-ons from Factor and from HelloFresh market to revenue growth? And any sort of color on what you're doing with HelloFresh at the moment -- market at the moment? And whether you're still on track for the 500 SKUs by the end of the year?

[Christian Gaertner, CFO & Member of Management Board]

It's Christian here. So first, on your first question, what makes us comfortable to get towards the 24% to 25% contribution margin in Q4? It's really 2 things. One, as I alluded to, there's one about a 1 point margin impact in those Q3 results really from one-off special factors. So, that I had alluded to, hopefully, will not see the same in Q4. So that basically will lift margin hopefully, accordingly. And then secondly, we typically see in Q4 a somewhat more favorable seasonality. So, what I had discussed about in terms of lower fixed cost utilization during really 2 out of the 3 months in Q3, we typically don't have that in Q4 and also from a packaging perspective, given the temperatures are lower as we enter the winter in most of our markets that saves us a couple of basis points as well. So, if you take all of that together, that makes me confident that we will get towards that zone. On your next question. So with respect to our outlook, into 2022, there would -- I want to ask you to -- for your patience effectively. So that's something we would like to work through with you in a bit more detail at our Capital Markets Day in December. That's really the first time when we want to discuss how we look at 2022 in a bit more detail. And then, on the contribution of the different growth vectors that we have in the business, and I think you alluded to Factor, Factor in the most recent quarter contributed at mid-teens growth to our U.S. segment and mid-single digits to our overall growth of the group. So, I think very well on track. We've had 2 weeks, where it didn't contribute fully because we had some roof damages and had to stop production in some parts. But overall, I think a very, very strong development of Factor, which has also given us the confidence to go ahead with the YouFoodz deal. HelloFresh marketplace, I think, is also well on track. The pilot and Benelux has now been extended to about 500 SKUs that we offer to our consumers in the U.S., we're now delivering out of 4 of our fulfillment centers to about 75% of the U.S. population, an assortment of about 100 products. And hopefully, as we go into 2022 or by mid-2022, we can also launch that offering in some of our other international geographies. I think overall, it's something that we definitely believe will play a big part in our future growth strategy. Especially, if you look at customer uptake numbers and customer satisfaction numbers, I think it's something where we can deliver value and where customers -- and where we've become more relevant to customers to take on a larger part of the overall consumers' food budget.

[Operator]

The next question is from Fabienne Caron, Kepler.

[Fabienne Caron, Head of Food Retail Sector]

Two quick questions from my side. Can you share with us the weight of customer reactivation in the quarter in the U.S. and internationally? And the second question, would be some of your competitors have been talking about increasing costs for acquiring customers. I was wondering if you could share your views on this point?

[Christian Gaertner, CFO & Member of Management Board]

Christian here. So on reactivation percentage of total new customers joining us in the quarter, it is at round about the mid- 20s percent that we have discussed in the past. In terms of development of our customer acquisition costs, there we don't see a massive inflation that we had alluded to, we've seen a certain normalization versus the depressed levels in 2020. So overall, we see CACs broadly in line with what we've seen towards the back end of 2019, which we considered as very healthy CACs for us as well. Since then, we've increased average order value, which obviously then lift our customer lifetime value. We also have a very strong trend in both order rates and retention, as Dominik has taken us through. So, in terms of overall customer profitability and that includes CACs in that equation, we are actually very upbeat with what we're seeing in our trend.

[Operator]

And the next question is from Andrew Gwynn, Exane BNP Paribas.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Also 2 fairly quick questions. So just firstly, again, back on the operating environment. Obviously, we hear a lot about sort of transportation wages and so forth stepping up significantly. You flagged that a bit. So I'm just wondering how far through the curve you are on that? And maybe a sort of appendix to that question, which is about the unionization. We're hearing a lot of in the U.S. anything on that could be something for us to have in mind as we do our models? And then the second point, you kind of touched on a little bit, but just on the improving order size, obviously has seen pretty significant step-up. And as you mentioned, it does seem like COVID behavior is somewhat behind us now. So just wondering what's happening there? Is that sort of marketplace or something else going on?

[Dominik S. Richter, Group CEO & Member of Management Board]

Thanks, Andrew. So these were actually 4 questions, if I counted correctly. Let me take the first one. So, in terms of specifically to logistic costs, including wages there, we think the current baseline is ballpark what we would expect in the future, where we expect more to come is both in terms of production wages as I had mentioned. And then also in terms of ingredient price inflation effect there we expect some more to come. On the unionization efforts in the U.S., we obviously respect the choice of our employees, whether they wanted to choose or refuse union membership. I think, as a business, we obviously prefer an open and direct dialogue with our employees. I think, we have a very strong employer value proposition with fairly high satisfaction rates, with very good insurance levels in the U.S. for our employees, with very good salary levels in the U.S. So, I think we actually have a strong employer value proposition, and we prefer to have a direct dialogue with our employees, but obviously respect whatever they choose or refuse to do. And then I'll also take the next one on order rate. So, in the short run, order rates can be driven by things like price incentives, by things like sort of like some digital features, making it easier to choose the right meals or to filter meals, et cetera. So those are kind of like small things that can drive up order rate. But really over longer periods of time, so 2 years, 3 years, 4 years what really structurally moves order rate is if you improve the assortments that customers can choose from. And over that 2-year period, we've quite significantly expanded the number of meals that customers can choose from. We've also quite significantly improved the service levels. So, the time from order to delivery, plus we've, on top, launched our marketplace items in many different countries. So, I do think that if you compare just one-to-one, the customer value proposition that we saw, often talk about as it was 2 years ago and as it is today, and all of those improvements actually compound and have an impact on the higher order rates of the 14% higher order rates we see today compared to 2 years ago.

[Operator]

The next question is from Marcus Diebel, JPMorgan.

[Marcus Diebel, Research Analyst]

Three questions also from my side. The first one is on Slide 9, the revenue retention. Could you just help us or have me to understand how it's built? The 60% retention after Q3, does that include or -- does it clear up customers who drop out before? Or it doesn't really say, okay, you have a 60% revenue retention of the entire cohort, yes, just to be clear on this? And secondly, there's a lot of noise, news flow around ultrafast delivery networks, Gorillas and Flint and others. Some of them are offering meal kits. So far, we see a very different proposition to what you have. But do you feel you have to partner with them in the future and would like to use this I would say, a quickly growing distribution channel as well? Or do you think you still want to run your business more on a kind of like stand-alone base rather than partnering? And then, the third question, maybe also for Christian. Given the reopening, I mean there's a lot of, obviously, speculation what will happen at the beginning of the year. Could you maybe tell us maybe conceptually, what your tools are to drive -- you're very confident view on also Q1, Q2 next year? I appreciate you don't want to give guidance, but more conceptually, what is the data that you look at today that makes you comfortable on the H1 performance next year, that will be quite interesting in terms of active customers?

[Dominik S. Richter, Group CEO & Member of Management Board]

So Marcus, retention on Slide 9. So this is the same view that we had shown back at IPO, and I think in one of the Capital Markets Day, which basically looks at how much revenue do we generate with a starting cohort in the first quarter? And how does that develop over future quarters? So that, hence, includes everyone who has churned, and it also includes reactivations. So customers coming back, even if they haven't been a customer in the quarter prior to measuring it. With regard to your second question, meal kits in the fast grocery space. In the end time, that's the same as meal kits in offline grocery or online grocery. So, if you look at other players, right, and Ocado, a Kroger in the U.S., a Waitrose, I think, in the U.K., Little, here in Germany. I think meal kits -- different grocers have tried offering meal kits in all different sorts of formats and at different price points. And I think this is a more comparable offer to what you have traditionally found at grocers. And hence, we look at it pretty much in the same way that we looked at competing offers from offline or online supermarkets, which means that I'm sure there is like a portion of customers that actually likes one-off purchases that is happy and content with the small variety, small number of meals to choose from and very little rotation. And then, I think there is the vast majority of consumers who rather trade much better quality, much better variety and much better affordability actually or having to wait for 3 days rather than getting it in 10 minutes. And that's really the trade-off, we think, the vast majority of customers because home cooking is something that they usually plan out over many days in advance will actually prefer the solution that we have. And what you see in fast grocery is pretty much the same or the equivalent of what you have seen in the supermarkets for many, many of the past years.

[Christian Gaertner, CFO & Member of Management Board]

And Marcus, on your last question, given that you assigned it to me. Let me have a go at that. What makes us comfortable about starting 2022 on a strong footing is really a number of points. Number one, the strong -- consistently strong behavior we see by our existing customers. And therefore, also, when you compare the, let's say, the number of customers with which we enter 2022 versus what we had at the end of 2020, makes us quite comfortable that we will start the year strongly. On top of that, Q1, obviously, seasonally is always a very favorable quarter to bring in new customers to the service. In addition, we see very strong reactivation rates as well of former customers who then want to come back to the service, and we don't have any indications that, that would certainly change from going from Q4 into Q1. And then more underlying other points that Dominik had alluded to also in his presentation. So, constantly improving offering in terms of selection, type of recipes and all of that at very attractive price points, especially considering all the price measures that some others have undertaken already.

[Operator]

Next question is from Adrien de Saint Hilaire, Bank of America.

[Adrien de Saint Hilaire, VP & Head of Media Research]

A few questions for me, please. So first of all, how much of the -- if I may say, the lost users in Q3, do you think you can regain in Q4? Or perhaps asking it differently, what is your outlook for discontinuous for Q4? And perhaps you can explain to me why marketing spending increased so much in Q3 and yet active customers were down? Is it a question of, let's say, seasonality on the investments? Secondly, on the supply chain disruption risks. Can you explain to us how this is changing your approach to the business? I've seen that you've made additional investments in last-mile delivery in Germany, for example, is it something that you're planning to do at a larger scale? And then third question, you talked a lot about inflation in your prepared remarks. What do you want to do to, I would say, offset this? Do you think you have some room to increase prices for your meal kits? And perhaps, if you can discuss the sensitivity that you expect from these potential price increases?

[Dominik S. Richter, Group CEO & Member of Management Board]

Let me start off on active customers and give a bit more context to what I alluded before in the prepared remarks. So, I think, if you look at seasonality patterns of active customers pre-pandemic and you always saw a big jump in Q1, sort of like about the same in Q2, slightly down in Q3, modestly up again in Q4 before another big jump in Q1. I think, this is the same seasonality pattern that we expect for next year. And this is also the seasonality pattern that we have seen this year with the exception of the second quarter, where we just carried over a lot of customers from late Q1, where I think you all know how our business model works in the beginning. We have a lot of trial customers. And so a lot of customers that tried the product towards the end of Q1, beginning of Q2, I think this was sort of like one exceptional thing about the active customer pattern throughout the course of this year. So, to come back to your question, in Q4, we'll see that following the normal seasonality pattern, so modestly up from the Q3 levels that we have been right now. And then a big step-up in the first quarter, again, as we enter the new year.

[Christian Gaertner, CFO & Member of Management Board]

And then, on marketing cost development in Q3. So, as mentioned, we are very happy with that. Q3 typically is basically a quarter where we initially during July, August, dieback somewhat on our marketing activities because of the holiday season and then in September, stepped it up quite robustly and acquire new customers, quite a few of them then only get their first delivery in October. Against that backdrop, if you think about the 14.8% of revenues, where we ended up, we feel very well. And if you put that into a longer-term development versus Q3 2019, for example, we are very happy with where we kept our marketing expenses as percentage of revenues. And again, that was sitting below the low point of the guidance that we had originally provided in the quarter where we typically have a higher than full year average marketing cost as a percentage of revenues. Let me just quickly take your other question as well on potentially more midterm development of our supply chain, again, also keeping in mind basically certain cost developments. They're one, as you had alluded to, we are certainly looking at where it makes sense to further expand our own logistic operations. We have successfully introduced that in Germany, where we're doing most of 20% of our volume already through our own fleet. We're also testing that in certain markets in our U.S. business, and those tests look quite good to us. And then on top of that, as you know, we already are doing that through our own, fully owned logistic operations in our Benelux market as well as in our Australian market. Outside of logistics, the other area where we -- from, let's say, more midterm perspective, certainly have a lever to mitigate any potential wage pressure is within production is more as more we introduce further automation to our fulfillment centers over time, where we have certain plans, which we can discuss at some point in the future that will basically expose us less to labor volatility on that front as well.

[Dominik S. Richter, Group CEO & Member of Management Board]

And I think the last question was around pricing. So I think high level, right? We always want to be very attractive compared to all the other alternatives that consumers have. And at the moment, it feels like a lot of other companies also struggling to understand what they wanted to do. I think with the absolute levels that we see in terms of pricing, I think we offer great affordability to consumers. And I think with payback we have at the margins that we generate on our customer acquisition spend, on the customer lifetime value, how much that is being generated with the margins that we have, we feel very content with that. But I think overarching, a consumer's choice is always versus alternatives. And so, we're obviously tracking and monitoring quite accurately what are all the alternatives, so offline supermarkets, restaurants, delivery platforms, et cetera, doing and this is what we benchmark ourselves against and always try to find that price point that really maximizes long-term customer lifetime value rather than short term, protecting margins or boosting margins or decreasing margins. I think we always want to optimize for the long run, and we always want to do what is most attractive to consumers and drives long-term customer lifetime value.

[Operator]

The next question is from Clement Genelot, Bryan Garnier.

[Clement Genelot, Analyst]

I've got 2 questions from my side, if I may. The first one is on the U.S. just to understand how the continuous stronger performance in the U.S. would you say that it is because of a larger -- are still not yet fully reopened other offices and their employees are still working from home? Or is it just because more globally speaking, U.S. consumers are not structurally acting from out-of-home towards at home food consumption? And my second question is whether on the self-guidance and given the new and higher sections against, do you think that you will have enough centers opened to, let's say, fill all the orders, I mean, the upcoming months, I mean quarters? Or will you need to, let's say, open or extend the shifts in some centers?

[Dominik S. Richter, Group CEO & Member of Management Board]

Let me take a stab at the first one, the U.S. performance. I think the performance differential between our U.S. business and international business is mostly explained by the additional factor. The Factor 75, which we took over towards the end of last year and has been contributing to this year's numbers. I think outside of Factor, both international business as well as the U.S. business actually performing mostly in line and at fairly the same growth rates. And I definitely do think that a more persistent work from home environment, both in the U.S. as well as in international is something that is a net positive for us because whenever consumers eat more meals from home, that obviously increases the TAM that you can access and for which you can be relevant. So, if work from home routines persist at the same level as they do today then certainly, that is going to be a net positive for us.

[Christian Gaertner, CFO & Member of Management Board]

And Clement, on your question on capacity, whether that suffices for our Q4 guidance? Answer is, yes. So, our available capacity is commensurate with where we're guided to for Q4. Having said that, keep in mind that for the U.S., there is one more big fulfillment center that we will start to ramp up towards the end, at least of Q4 or Phoenix fulfilment center will go live. There are certain pockets where we are still capacity constrained. So, they are constrained so, there are at least 2 markets within international where we are quasi at full capacity, and we'll have to expand further until we can further crank up volume from there. And also in the U.S. for our ready-to-eat business, given that very strong growth that we had alluded to earlier, we are quite filled up as well, but have -- on our capacity expansion road map basically plan to address that in the near future as well.

[Operator]

The next question is from Emily Johnson, Barclays.

[Emily Johnson, Research Analyst]

I've got 3 questions, please. So the first one is, given your NOI in November, why have you maintained such a wide range for your EBITDA margin guidance at this point in the year, particularly for Q4? Can you explain the biggest swing factors within that and quantify some of those cost headwinds that you're facing? Secondly, the average order value increased in the U.S. in Q3 but declined internationally. Can you explain those 2 contrasting trends, how much of that was attributable to the mix of new versus existing customers in each market, for example? And then third question is, can you please provide an update on some of the recently launched and planned geographical launches? So, how are you progressing in Japan, for example?

[Christian Gaertner, CFO & Member of Management Board]

Emily, thank you. It's Christian here. So firstly, on your first question on EBITDA guidance, why have we kept that stable. So it's not necessarily that we think will end up at either bookends, but we are comfortable to end up within that guidance. That's why we didn't think with that. But as I had alluded to earlier, for the first 9 months, we stand at around about 9% EBITDA margin. And all part, that's the zone where we should expect us to sit for the full year as well. Secondly, on the trends in average order value, U.S. versus international, U.S., basically all what Dominik has said earlier, applies very strong development in terms of overall basket size and so forth. And that basically has furthered our average order value in the U.S. In international, just keep in mind that this is really a composite of effectively 15 different markets. And therefore, there are some mix effects in here as well. On a like-for-like basis, you also see actually a positive trend there on average order value in most geographies as well.

[Dominik S. Richter, Group CEO & Member of Management Board]

And on the geography launch update, we've done Norway in June, July. We've now just launched Italy a couple of weeks ago, and we hope that we can launch in Japan and get the first orders to Japanese customers towards mid-December, if not mid-December, then early January, but it's fairly imminent. And definitely challenging because with the corona in Japan and Visa restrictions, et cetera, a lot of our country launch teams have had a hard time actually getting into Japan. And it's been a quasi-remote launch. So nonetheless, excited to be able to get some live customer feedback in either December or January for the first time. And then from then on refine our products to a refined product markets within Japan.

[Operator]

The next question is from William Woods, Bernstein.

[William Woods, Analyst]

I've got 3. Just on the new facilities. Could you give us a view of how many have launched and how many are set to launch? And are you able to quantify how well they are ramping? The second one is, discounting in Q3. How did that trend? And how much does that weigh on your contribution margin over the last quarter? And then the final one, just building on the question on U.S. AOV growth. I think you've just added over a quarter -- over a year over quarter-on-quarter. How much of that is driven by you raising delivery fees in the U.S. and the mix of fact within that versus kind of actual organic AOV growth?

[Christian Gaertner, CFO & Member of Management Board]

William, it's Christian here. So, on your first question in terms of new facility fulfillment center launches, we actually launched in international 3 alone in the quarter and are still in the process of ramping up the previously launched quite quickly as well and actually faster than what we had originally planned. With respect to your second question on price incentives. There basically -- we basically didn't change our CAC versus the previous quarters. What you also see in our average order value, so which is up sequentially as well as year-on-year, you see that there's also a big shift in terms of our price incentive policy. Otherwise, you would see that impact on average order value as well. And then, William, sorry, I forgot your third question.

[William Woods, Analyst]

Sorry. The final question was just on U.S. AOV growth. So you've added, I think, just over a year over quarter-on-quarter. How much of that is driven by raising delivery fees in the U.S., the mix effect versus actual kind of organic AOV growth?

[Christian Gaertner, CFO & Member of Management Board]

The vast majority of that is organic AOV growth, i.e., more on market items and bigger basket sizes.

[Operator]

The next question is from Sarah Simon, Berenberg.

[Sarah Simon, Analyst]

Most of my questions have been answered, but I've got a couple more. One was on Factor. You obviously talked about kind of pinning it in before you started to really integrate the business. But have you started trying to cross-sell Factor into your sort of traditional meal kit customer base in the U.S. yet? Second one, just on prepared food, you obviously did the U.S. deal and the Australian deal. Do you think you've now got the expertise of how to do this so, that when it comes to other markets, you can do it organically? Or is it more like you look to buy local brands? And then, the third question, just following on from the comments around frequency and basket size. Is it reasonable to think that a lot of the customers that drop-off in Q3 are, let's call them, the very light users? Because that would be another reason for frequency to go up because normally, the holiday season, even with the strong customer base, you'd expect people to probably dial back a bit. So, is some of the, let's say, the sequential improvement more to do with the mix and just losing people who are only ordering one box a quarter or something and just didn't order this quarter? Anything you can say around how that's evolved would be helpful?

[Dominik S. Richter, Group CEO & Member of Management Board]

Sarah, on Factor, we have not have the opportunity to actually cross-sell that into the HelloFresh customer base. As a matter of fact, at Factor we're right now capacity constrained. And we've been scaling that business stand-alone. We would love to start doing that and sell that either via our menu or via the HelloFresh marketplace through our large customer base of HelloFresh and Green Chef in the U.S., but we haven't been able to do that. We just don't have the capacity. And that's something that is probably another 6 to 12 months out. Yes, that's basically what I can say to that. With regard to prepared foods more generally, I think we're building up that expertise at the moment, right? I think with every launch of a new DC that we're undertakings at the moment, right, we're building the second DC for Factor, second large DC for Factor, brand-new one in Colorado. So, this is something where now our team is really from end-to-end involved in understanding that fully in understanding the manufacturing process, et cetera, so that we actually in-source more and more of that knowledge and generate more of that knowledge in-house. So, that as we look towards going into other international markets, we always have a choice of either doing it ourselves or working with local competitors. I think, the only other thing I would say to that is that sometimes looking at established competitors, it's just a matter of time to market. So I think, when we look at YouFoodz, for example, what we also really like is the fact that it already has an established customer base, has an established manufacturing setup. And that just means with you that we had -- would have done that from scratch, would have probably taken us 2, 3 years to get to the stage where YouFoodz is today, at least and then growing it from there. And with, for example, taking over a business like YouFoodz, we can now leverage some of the playbooks that we have and rather help us to 3x revenues from where they are rather than taking 3, 5 years to get to the revenue where they are today. And with regard to your last question on frequency and order rates, I think the biggest impact by far, is seasonality that you see compared to Q2 compared to what you will see in Q4 that we had like worse customers kind of like not ordering that often, anything like that, if at all, a small impact, I think, a much bigger impact of the seasonal Factor.

[Operator]

And the last question today is from Nizla Naizer, Deutsche Bank.

[Nizla Naizer, Research Analyst]

I'll keep it brief and only 2 more questions from my end. Firstly, thank you for sharing the retention update on Slide 9. A question there on how the cohorts since the pandemic began have sort of trended? And if you place them on that chart that you shared with us, would this sit above the Q4 2019 line? Some update there would be great because we have heard one of your smaller competitors talk about volatility in the customer behavior in Q3, for example. Just curious to understand if your customers have been a bit more stable in terms of their behavior? Some color there would be great. The second question is on Q3 international growth. Clearly, it's a mix of multiple countries. But have there been any regions that have grown faster, more sort of attractively and others that are more challenging? Some color on who contributed to that growth or which country contributed to that growth would be fantastic?

[Dominik S. Richter, Group CEO & Member of Management Board]

Nizla, on your first question, obviously, those cohorts haven't matured, yeah, this is really long-term retention and retention after 2 years, 3 years, 4 years. But if you look at the most recent data points and how we project that to proceed as actually those cohorts mature, and it should sit pretty much where you see the cohorts of 2018 and 2019 sitting. This is sort of like where I think is now the sort of like more long-running average that you'll see from us.

[Christian Gaertner, CFO & Member of Management Board]

And then, Nizla, sorry, just to make sure I got your second question properly. This was whether any of our markets grew exceptionally strong in Q3? Or sorry, do you mind to also repeat that question?

[Nizla Naizer, Research Analyst]

Yes, Christian, just trying to understand the mix effect within the international growth, I think were the markets that grew much faster than the average and others that grew slower and why that might have been the case? Just to understand the regional sort of development.

[Christian Gaertner, CFO & Member of Management Board]

Yes. I would say, we're not talking about massive differences. So, across most of our geographies, we've seen very healthy growth. So, even if there is a certain mix shift left or right, overall, we basically saw most of our markets in international actually expanding very nicely. There's a bit of a, let's say, different seasonality, Australia and New Zealand, for example, are on a different seasonality versus other markets, you have a little bit that effect in the mix as well. But otherwise, if you abstract from that, we are actually quite happy and have seen robust growth across most of our geographies within international.

[Dominik S. Richter, Group CEO & Member of Management Board]

To sum up, I think we've seen some very strong underlying trends in our customer base. I think, a lot of what we have done to improve customer value proposition over the last 2 to 3 years is really paying off. We have -- are entering or will be entering 2022 on a much higher customer number than we entered 2020. And hence, I think, have a positive outlook, especially driven by those strong underlying fundamentals. And I think, despite the fact that we obviously go into some period of heightened uncertainty. I think overall, we're extremely confident with all of the investments that we're making in people, in technology, in capacity because that's really the basis for us to continue to grow and compound over the next couple of years. And I think overall, we have a very positive outlook on our trajectory towards the EUR 10 billion mark that we have announced in our last Capital Markets Day.With that, I hope to see you all at our upcoming Capital Markets Day in December. And until then, hope you have a great day.