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GrubHub Inc (GRUB) Q1 2019 Earnings Call Transcript

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GrubHub Inc  (NYSE: GRUB)
Q1 2019 Earnings Call
April 25, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Chantelle and I will be your conference operator today. At this time I would like to welcome everyone to the Grubhub Q1 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Adam Patnaude, Head of Investor Relations, you may begin your conference.

Adam J Patnaude -- Head of Corporate Development and Investor Relations

Good afternoon, everyone. Welcome to Grubhub's first quarter of 2019 earnings call. I'm Adam Patnaude, Head of Investor Relations. Joining me today discuss Grubhub's results are Founder and CEO Matt Maloney; and our President and CFO Adam DeWitt. This conference call is available via webcast on Investor Relations section of our website at investors.grubhub.com. In addition, we'll be referencing our press release and Q1 2019 investor presentation both of which are available on our website.

I'd like to take this opportunity to remind you that during this call we will make forward-looking statements including guidance as for future performance. These forward-looking statements are made in reliance on the Safe Harbor provisions of the Securities and Exchange Act of 1934 as amended and are subject to substantial risks and uncertainties that may cause actual results to differ materially from those in our forward-looking statements.

For additional information concerning factors that could affect our financial results or cause actual results to differ materially, please refer to cautionary statements included in our filings with the SEC including the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31st 2018 filed with the SEC on February 28th 2019 and our quarterly report on Form 10-Q for the quarter ended March 31st 2019 that will be filed with the SEC. Our SEC filings are available electronically on our investor website at investors.grubhub. com or the EDGAR portion of SEC's website at www.sec.gov.

Also, I'd like to remind you that during the course of this call, we will discuss non-GAAP financial measures in talking about our performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release.

Finally, as a reminder all our key business metrics exclude transactions like LevelUp and Tapingo where Grubhub only provides technology or fulfillment services.

And now, I'll turn the call over to Matt Maloney, Grubhub's Founder and CEO.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Thanks Adam. Good afternoon everyone and thanks for joining the call. We just finished up a delicious late lunch of spring crunch balls from Just Salad which just announced earlier this week that they're taking advantage of a unique Grubhub innovation which allows restaurant brands to efficiently access the massive growth from our marketplace while maintaining control of their brand and their diner relationships. This includes full service POS integration, a bespoke loyalty program and analytically driven CRM capabilities. Grubhub is the only restaurant partner in the world that offers this type of full-spectrum partnership and we are excited to help Just Salad grow their online business.

During the quarter, we also added 5,000 new enterprise locations by expanding our relationships with Dunkin Brands, Pizza Hut, Auntie Anne's, and Jersey Mike's among others, and launching a number of new enterprise partnerships including Smoothie King, Halal Guys, Golden Corral, and Smokey Bones. Fifteen years ago I founded Grubhub with one goal in mind, to help local restaurants grow their businesses profitably by making it easier for diners to order takeout online. Our 115,000 enterprise and independent restaurant partners alike understand that in order to be successful in today's world, they need a comprehensive online strategy. At Grubhub, we are uniquely positioned to help restaurants with demand generation from our massive network of over 19 million active diners, comprehensive delivery coverage in the US and the best tools and technology to promote their brands and control their diner experiences.

We just wrapped another outstanding quarter of execution at Grubhub. We generated 521,000 DAGs in the first quarter, up 19% year-over-year. This marks the sixth consecutive order of accelerating organic order growth in our business, in part driven by yet another record increase in our net active diners. Even more impressive from an execution standpoint, our profitability per order grew meaningfully during the quarter even while we continue to invest in growth which has been strong in all of our markets. This order growth translated to net revenue of $324 million, up 39% year-over-year and 13% from the fourth quarter. Adjusted EBITDA for the first quarter was $51 million, compared to $64 million last year while adjusted EBITDA per order was $1.09, up from $0.98 in the fourth quarter.

In the fourth quarter of 2018, we announced our decision to expand our delivery coverage and increase our advertising spend given the momentum we saw earlier in 2018. We knew these investments would weigh on our profitability during the fourth quarter and to some degree throughout 2019, but we were confident it was the right decision for the business. Six months later, it's clear that these investments have resulted in strong growth momentum and clear operating leverage.

During the quarter, our delivery efficiency improved in the markets we launched in 2018, helped in part by strong demand for Taco Bell in many of these markets following the national advertising campaign we talked about last quarter. On the marketing side, we maintained a more aggressive posture and continued to bring in high-quality new diners at a stable acquisition cost. We added 1.6 million active diners in the first quarter, another record, and finished the quarter with 19.3 million active diners, up 28% from the prior year. As we will highlight later, these new diners have repeat rates just as high if not higher than diners we acquired a year ago.

In summary, early returns on our investments have been great, high-quality growth and already improving per order economics. As we mentioned in our press release, we've included some updated diner quality and cohort information in the supplemental information presentation posted to our website. Given the significant investments and associated dramatic ramp in diner growth, we thought it was a good time to update you in terms of the value of our diners. Over the years, we've noted over and over again that our disciplined approach to diner acquisition, our broad and deep restaurant network and our ever-improving user experience create incredibly sticky diner cohorts that should bring value to Grubhub for years to come.

We've also noted more recently that because of all the improvements in our platform and marketing, we've been able to acquire high-quality new diners in older and newer markets alike even as we've dramatically increased marketing spend and new diner volume. In the provided cohort charts, you can see that diners that first ordered from us in the first quarter of 2015 are spending just as much if not more today than they were last year and the year before that. These charts include diner attrition. So the few diners that leave the platform are offset by diners that remain in the cohort spending more and more on Grubhub over time. If we show the revenue Grubhub generates from these cohorts, it would be even more positive as we all know that restaurant commission rates have risen over time.

The dynamics illustrated in the supplemental information deck validate the decision we made to invest more in growth over the last two quarters. One of the keys to building these relationships with our diners is our partnerships and deep integrations with our restaurants. Restaurants excel at making great food. Grubhub excels at helping restaurants sell more of that food online. We have built the only suite of services to help both enterprise and independent restaurants grow their online business branded and marketplace profitably and sustainably.

It starts with demand generation, leveraging a 19 million active marketplace diners to drive growth. But that is only one part of the story. We also offer world-class delivery for restaurants that don't want to provide their own. Our over 65,000 active drivers deliver more than 200,000 orders on busy days, that's over two orders per second. Much of our volume is still supported by restaurants that prefer to deliver their own food, but we are here to support the restaurants that choose not to.

For restaurants with strong brands, we offer highly customizable on-brand fully functional white labeled native apps that allow restaurants to build their online presence and enrich their brand further. To help restaurants service these orders, we are able to integrate orders from both these branded apps and our marketplace diners directly into point-of-sale and kitchen display systems that maximize efficiency and make processing online order seamless with existing operations.

Finally, Grubhub has launched groundbreaking bespoke loyalty programs that work in-store and across both branded apps and the Grubhub marketplace to maximize brand building and diner impact. Allowing brands to surge rewards into our marketplace is a game changer for restaurants, diners and the whole industry. This magnitude of financial incentive to order and come back often is simply irreproducible on other third-party ordering platforms that do not partner with restaurants like we do. In addition to Just Salad, this unique loyalty functionality is currently available for other enterprise partners like Pokeworks, Protein Bar, Yalla Mediterranean, and Saloniki with many more coming down the pipe, so keep an eye out for loyalty points from your favorite brands. By partnering deeply with Grubhub, restaurants can can own their online diners just like their in-store diners including the transactional data all the way down to the individual diner and combined online orders with in-store diner behavior to improve their diner LTVs and their marketing ROI.

Clarity on where their diners are coming from, what channels they are using and what they are ordering is critical to brand success online. If restaurants don't own their data and don't control their branded experience, then they are merely renting customers from wherever their online orders originate. Grubhub's products empower restaurants to own their digital customers and build their online business sustainably and profitably. This is how digital partnerships should be structured. This is the future of online ordering for restaurants.

As we talked about last quarter, we kicked off our co-marketing campaign with Taco Bell in February. I'm sure many of you saw the commercial Taco Bell created that aired in February and March where a diner achieved his ultimate dream getting Taco Bell delivered. The national campaign in our support of our Yum! partnership with free delivery was a huge success. As you can tell by the strong growth in active diners during the quarter, the campaign attracted many new diners to the marketplace. Diners that place their first order with Taco Bell during the free delivery period are returning to Grubhub at the same or better rates as a typical diner even after we ended the free delivery campaign. Some come back and order Taco Bell again, but the majority are trying other restaurants on the platform as well. Our partnership with Yum! Brands is working. Delivery unlocks more ordering occasions for Yum's restaurants and we are adding diners that have yet to try online ordering, a true win-win. This initial Taco Bell campaign is just the beginning of how Yum! and Grubhub will be working together to help grow all of their brands online business.

The Grubhub and Tapingo teams are also working together to create a unified ordering experience in college campuses. The best-in-class mobile ordering system Tapingo developed and the seamless experience students have come to depend on will soon reside directly in the Grubhub app. We expect the technical integration to be completed before school starts this fall and we'll be migrating diners when they get back to school. Consistent with our past thinking, we find there are significant benefits to managing and investing behind a single brand.

As I think about the future, I see people using their mobile devices exclusively to order takeout and more often and for more occasions. We still have a huge opportunity in front of us and it's only getting bigger. We are focused on improving and adding to our offering in anticipation of this future, but our core mission and singular focus of connecting hungry diners with the right restaurants hasn't changed.

I'd like to finish the day with a big thank you to our diners. Back in October, we give diners the ability to make a small donation each time they ordered on Grubhub by rounding up their order total to the nearest dollar. While all that change is added up and over the past seven months, our diners have donated more than $5 million to outstanding food-related community focused non-profit organizations and most significantly to the No Kid Hungry campaign whose mission is to end childhood hunger in the United States. Lots of great continued momentum this quarter and look forward to updating you on our progress later this summer.

With that, I'll turn the call over to Adam.

Adam J. DeWitt -- President and Chief Financial Officer

Thanks Matt. Before I review the details of our strong first quarter, I wanted to discuss the supplemental information materials Matt referenced. We posted a handful of slides to the Investor Relations website with our earnings release. Over the last few quarters, we talked about how our diner cohorts remain extremely stable and our significant investments in marketing and delivery are yielding high-quality new diners at a reasonable cost. Given the ramp in our investment pace in the fourth quarter, we thought this was a good time to share additional metrics that help illustrate the stickiness of our marketplace, our ability to attract high-quality diners and reinforce our decision to be more aggressive in marketing and with delivery market launches. To be clear, this is not an earnings presentation nor is this something we plan to update in subsequent quarters, but we believe it gives valuable context for our decisions over the last couple of quarters. Some of my comments during the call are reinforced in the slides, but I encourage everyone to spend time reviewing the presentation after the call.

With that as background, I'll dive into our first quarter results. Grubhub processed 521,000 daily average grubs in the first quarter, up 19% from the first quarter of 2018. If we adjust for some small noise from the Eat24 acquisition in last quarter's growth rate, we had about 150 basis points of acceleration in the first quarter, marking our sixth consecutive quarter of organic DAG growth acceleration. Active diners grew 28% year-over-year to 19.3 million in the first quarter as we added 1.6 million net active diners marking another quarterly record of additions. To put this into perspective, we added more net diners in the first quarter of 2019 than we did in all of 2016. Certainly contributing to the growth was a successful Taco Bell national rollout promoting our partnership. This included their national TV advertising campaign and our sponsorship of free delivery both of which ran for roughly half the quarter.

We believe that in aggregate the Taco Bell campaign contributed an incremental few hundred thousand new diners and 100 basis points to 150 basis points of incremental DAG growth during the quarter. These new diners are high quality, returning just as frequently as newly acquired diners from other channels and they return to Taco Bell, but also engage with other restaurants on the marketplace at a high rate. Even without the tailwinds from the Taco Bell campaign, it was a strong quarter for growth. We believe the organic growth rate would have been at least on par with the strong fourth quarter and that net active diner adds would have been a record without the Taco Bell TV campaign and free delivery.

The underlying core business is growing faster than at any point in the last two years. This exceptional underlying growth is the result of our continued strong execution including a higher level of efficient advertising spend, accelerated high-quality restaurant additions, delivery quality improvements and consistent product enhancements.

Gross food sales for the first quarter were $1.5 billion, increasing 21% from the prior year with our average order size up a little over 1%. First quarter net revenues were $324 million, up 39% year-over-year. Our capture rate of 21.6% includes roughly 90 basis points from LevelUp and Tapingo's technology-oriented revenues. Normalizing for LevelUp and Tapingo revenue, capture rate was up about 200 basis points year-over-year and 50 basis points sequentially reflecting a mid shift toward more Grubhub delivery orders and also a continued small upward impact from restaurants choosing to pay more on our marketplace for more impressions.

This latter dynamic has been consistent for many years at Grubhub. Operations and support expenses grew 68% year-over-year from $96.3 million to $161.4 million in the quarter driven by increased delivery orders and the underlying growth of our order volume. Grubhub Delivery accounted for a little over 30% of our DAGs during the quarter. Revenue less operations and support per order which we have said is a reasonable way to measure our delivery efficiency was $3.46 per order, an improvement from $3.34 in the fourth quarter. We are generating more orders in our recently launched delivery markets which is improving driver efficiency resulting in a lower per order delivery cost just as we laid out on last quarter's call. For clarity, our operations and support line contains virtually all of the variable costs associated with orders that are not already netted out of revenue including a 100% of driver pay, driver subsidies, background checks, driver gear ,credit card processing costs and customer care costs. Our investment in delivery is working, generating growth in those new markets and we're already seeing operating leverage as we scale.

Sales and marketing expenses were $78.5 million in the first quarter, a 61% increase compared to the same quarter last year, and up 12% sequentially from the fourth quarter. We said we're going to maintain an aggressive posture with marketing and the sequential increase is consistent with past seasonal patterning for the first quarter, which is typically strong for new diner engagement. During the quarter, we increased advertising spend across all marketing channels and acquired a record number of quality new diners. Our "I Want It All" TV creative have been very successful.

In the supplemental slides, we show the trend of our cost per new diner over the last three years. Even though we spent 3 times more on advertising in the first quarter of 2019 than we did in the first quarter of 2016, our cost per new diner is only up approximately 10% over those three years. We're showing the CPA trend line is a trailing four quarters' average because of seasonality. But as a data point, even if you exclude the new diner impact of the Taco Bell national advertising campaign, effectively normalizing for the impact of that campaign, our cost per new diner in the first quarter was unchanged from the fourth quarter. Our disciplined approach to diner acquisition is a key driver of the stable cohort behavior you see in the supplemental slides which Matt discussed earlier. It also supports the improving retention rates you see for both brand new and somewhat new diners also in those slides. Finding the right diners and bringing them to a marketplace with constantly improving restaurant supply drives higher diner retention which you can see both one month into a Grubhub diner's journey and one year after their first order. We show this dynamic for a number of different cohorts and markets to show that this is a broad phenomenon on Grubhub. It's not limited to one market or one vintage of diners. Our investment in advertising is working.

Technology expenses excluding amortization of web development were $27 million for the quarter, increasing 57% from the first quarter of 2018. A majority of this growth is related to the engineers we acquired with LevelUp and Tapingo last year. As Matt noted, because of the products and engineers the came with LevelUp and Tapingo, we are seeing a lot of traction in our enterprise restaurant relationships. We are setting a standard in helping restaurant brands grow their online business. Whether it's full end-to-end partnerships like Just Salad or expansions of existing relationships with partners like Subway, Auntie Anne's and White Castle we are having great conversations with brands both big and small. We believe this will be a meaningful growth catalyst for us over the coming years and we'll continue to invest in product development and internal infrastructure to support future growth of enterprise partnerships.

Depreciation and amortization was $25.1 million for the quarter, up 20% year-over-year and 4% sequentially. This includes the full quarter of amortization related to the Tapingo acquisition we closed in the fourth quarter. G&A costs were $22.8 million, up 29% from last year and down $5 million from the fourth quarter. As a reminder, there were $7 million of one-time expenses last quarter related to the acquisitions of Tapingo and LevelUp.

GAAP net income was $6.9 million in the first quarter compared to the prior year of $30.8 million. Net income for fully diluted common share was $0.07 on approximately 92.9 million weighted average fully diluted shares.

Our go-forward tax rate will be approximately 31% before any additional impact from stock-based comp which is very difficult to forecast.

Non-GAAP net income was $27.9 million or $0.30 per fully diluted common share compared to the prior year $47.2 million or $0.52 per fully diluted common share. Adjusted EBITDA for the first quarter was $50.9 million compared to $64.1 million in the same quarter the prior year, but up 21% from the fourth quarter. Adjusted EBITDA per order, which we view as a good indicator of our profitability, was $1.09 in the first quarter compared to $0.98 in the fourth quarter. The $0.11 sequential increase is mostly result of the improving delivery efficiency we have discussed.

We ended the quarter with approximately $200 million in cash and equivalents, $340 million in debt and $200 million in committed unused capacity on credit line.

Now some thoughts on our guidance. We currently expect second quarter revenue to be in the range of $305 million to $325 million and are reiterating our full-year guidance range of $1.315 billion to $1.415 billion. We always have a sequential decline in order volume from the first quarter to second quarter, but it's worth calling out that the usual seasonal sequential decline is likely to be a few hundred basis points more than typical because of the Taco Bell national advertising campaign benefit in the first quarter and the fact that Easter fell entirely in the second quarter this year.

We expect second quarter adjusted EBITDA to be in the range of $49 million to $59 million. While we had to some EBITDA outperformance in the first quarter, as I noted earlier, we are excited about the traction we are seeing in the enterprise base and investing behind product development and infrastructure in that channel throughout the remainder of 2019 that will set us up for the future growth. This will likely offset the EBITDA outperformance in the first quarter. As a result, we are maintaining our full year EBITDA guidance range of $235 million to $265 million. We remain on the path for significant improvement in EBITDA per order throughout 2019 with a solid first step in the first quarter. But importantly, we can achieve this leverage while also investing for growth at the same time. We are laser focused on capturing as much of the offline takeout market that will move online over the coming years and doing it in a long-term sustainable way for our restaurant partners, diners and drivers.

With that, Matt and I will take your questions. Operator, please open up the lines.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Jason Helfstein with Oppenheimer.

Jason Helfstein -- Oppenheimer -- Analyst

Thanks. I think every earning season now where things like we're seeing another data point about the importance of delivery to last ride (restaurant) I think will be either this morning or yesterday kind of cited 100% growth from digital. Can you just talk about the kind of progress you're making with the conversations with chains, there was obviously the headline about McDonald's potentially being nonexclusive with their using product or the conversations you're are having about how the software platform works exclusivity versus non-exclusivity? And then the types of economics that have been talked about given that. Are they chains still looking for the lowest price take rate, and kind of what's your ability to kind of negotiate? Thanks.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Hey, Jason, this is a Matt. Thanks for asking that question actually. I have a lot to say about our relationships with chains, the conversations, the rates and the current forms of exclusivity that's going around. So this maybe one of the longer answers, but I think it's going to be really interesting. So the bottom line, as I said in my comments earlier, the products and the platforms that we have produced are irreproducible currently given the lack of partnerships in lots of our competitors. We're providing the products that restaurants want. I think I said in a few earnings calls that management teams are kind of between a rock and a hard place with trying to figure out digital profitability over time given the fact that they don't have any of the information on the customers that are placing those orders. So as you mentioned, 100% digital growth. As soon as they change platforms, they are up a creek in terms of trying to reproduce that growth. And so it really puts management teams in a really difficult spot.

And so we have changed the game. And it was a combination of these the LevelUp technology and products, the Tapingo acquisition, the teams and folding it all into our delivery capabilities in our marketplace but we are providing the total package. And I think if you talk to restaurant management teams right now, they will validate that statement. I'm extremely confident because I feel that we're winning across the board when it comes to chain and enterprise conversations. No one else has this combination of the marketplace growth, delivery, delivery as a service, loyalty programs including where we share customer data with POS integration. This is exactly what they want, and like I said, we're the only ones offering it. While -- in terms of fees, while major brands do have more leverage than local restaurants, we are not as impacted in the pricing conversations because we actually bring real value and we're helping brands build a long-term and profitable business.

So we're paid fairly for our services which then allows us to achieve long-term sustainable economics which I think you also know is rather unique in our industry. So when you think about the exclusivity components of some of these relationships, exclusivity for all of our competition is simply economically motivated. Zero or near zero fees for the brand to forgo all orders from all other platforms. This just isn't sustainable even with billions of dollars and private venture money flowing in, if this is not a long-term business. We also currently have exclusive partnerships. But because we have built exceptional tools that help our restaurants build a sustainable and profitable online business, so restaurants choose to work only with us not because of an economic incentive, but rather a practical one because they want to own their customers and build a long-term asset.

This is extremely rational. Over time, I don't think exclusivity will be the norm as restaurants will always want to increase total food sales. And I think they should be able to access diners across all platforms, but you have to remember the brands will always prefer to spend their marketing dollars building a diner base on platforms that share their customer data with them. And that's at least what we have seen to date.

Jason Helfstein -- Oppenheimer -- Analyst

Thank you. It's very helpful.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Thank you.

Operator

Your next question comes from Tom Champion with Cowen.

Tom Champion -- Cowen -- Analyst

Hi, good afternoon guys. Adam, on EBITDA, I guess i'ts the enterprise investment which accounts for why EBITDA guidance is remaining unchanged for '19. Last quarter you provided some thoughts on jumping off point for '20. And just curious if those comments remain in place? And then Matt, just curious if you could talk a little bit more about the partnership with Yum! and maybe what we could expect through the balance of the year? Curious if the Taco Bell app and KFC app are close to going live, and if the $5 million in free delivery was completed in 1Q? Thank you.

Adam J. DeWitt -- President and Chief Financial Officer

Sure Tom. So in the in terms of the EBITDA, the jumping off point where we think we're going to end up at the end of the year, we still feel really good about the comments that we made last quarter and the progress we talked about getting back to where were in '18 and that's really unaffected. In terms of the investment, yeah, you hit on it, it's really about -- and it really builds on what Matt was talking about in terms of the products, the infrastructure to support future growth in that -- in the enterprise space. And so we're really excited about it. It's just a couple of million bucks, but that's how you get to the math. If you do look at -- when you look to your modeling, you will get to a place where that EBITDA per order in the fourth quarter is right on track to where we said. And I think that's we try to emphasize that in the comments. Matt?

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Yes, I got that. For the Yum! partnership, so both the KFC -- so we're working closely with KFC, I'll start there to develop their white label app, I've seen it. We're actually building it as part of the product suite we're doing. And it looks amazing, I'm real excited about the launch. There's really nothing on our end that's preventing the KFC launch whether it's the app itself or the broader campaign. We currently have more than 3,000 KFCs in our platform that are currently receiving orders from Grubhub. We know the campaign is coming. We really look forward to continuing to support KFC through our marketplace and powering the upcoming, did I mention, it's incredible white label app when it's released. But it's going to be KFC that decides when that goes live based on their calendar. And so we're just kind of waiting to support that. Similar to Taco Bell, obviously fully supportive there, launched the national campaign, they are choosing to build their own app which is fine with us.

It's running on our rails. Like we said before, we are indifferent if the order comes across our marketplace or their branded apps. That's probably the uniqueness of fully aligning with a partner. Yum! was the first partnership that we built in the new frame of supporting restaurants or enterprise brands with sustainable profitable growth. And then actually, Pizza Hut also is really excited about our partnership based on early results. And I know we have played down expectations to date but we're all working really hard on expanding the pilot and we will have more information when it's nailed down, but I think that's coming sooner rather than later.

Tom Champion -- Cowen -- Analyst

Thank you.

Operator

Your next question comes from Ron Josey with JMP securities.

Ron Josey -- JMP securities -- Analyst

Great. Thanks for taking the question. I think, Matt, you said recently you're willing to be and you definitely are a lot more aggressive and extremely aggressive when it comes to investing in the future. And we saw that with the sales and marketing costs including with active diners. But when I hear Adam you talk about the CPA up only 10% over the last several years, why not spend more? Could you spend more? Would that be more efficient? Would that be efficient based on your LTM calculations, I guess is one question. And then maybe following up on that last question just with Pizza Hut, and Matt, you mentioned Dunkin Brands extending the partnership. Last quarter, you talked about how quickly it was implemented. Please give more insights on how that's going with Dunkin, and of course, with pilot on Pizza coming soon, that would be exciting to hear too. Thank you.

Adam J. DeWitt -- President and Chief Financial Officer

Hey, Ron, I'm actually going to take the CPA question. It's a good question. When we show the CPA, you're looking at an average, right? And our approach to advertising and how we think about spending hasn't changed in a long time. And that is we're spending to the point of inefficiency, right? And so what we're looking for is we don't want to be spending more on that last incremental diner than there was. And so what you are seeing is really the output of what's happening across all of our channels, right, paid, unpaid, everything in terms of the average, there is no peg there, right? What I'll tell you is, from an LTV perspective, the diners are worth a lot more than the CPA that you're seeing on -- CPA that you're seeing there. And so we would be comfortable if it was up. It's just what we're not comfortable doing is spending more on the last incremental diner than there were. Does that make sense?

Ron Josey -- JMP securities -- Analyst

It does. I mean how do you sort of reconcile that just one last follow-up on with perhaps your competitors that are spending more and maybe taking lion's share there? Thanks.

Adam J. DeWitt -- President and Chief Financial Officer

Well, I can't speak to their economics. All I can point you to is our numbers which show you that we've been able to acquire a lot more diners, right, spending a lot more money and maintaining efficiency. But not only that you're seeing the diners improve in quality over time, right? I hope -- I don't know if you got a chance to read through the supplemental deck but the repeat rates on our January and February 2019 diners are higher across all of our markets than they were in 2018 or 2017. So the quality is going up, we're spending more money and the cost isn't increasing. And so the formula is working for us. The underlying organic growth in our business, I think Matt may have said this in his comments, I'm not sure, but the underlying growth in our business is stronger now than it has been in any point in the last two years. And so we're happy. I mean we've been able to deploy more, we just ramped up 50%, 60% from the third quarter, the fourth quarter and first quarter.

Ron Josey -- JMP securities -- Analyst

Makes a lot of of sense.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Hey Ron. Yeah, in terms of the enterprise pilot and expansions, kind of like I said earlier, winning across the board is the take away here. Dunkin is extremely happy, excited. Even I don't know if you had a chance to look at Dunkin's Q&A from the last earnings call, but they had some extremely nice things to say about us. And we are aggressively expanding that pilot. I think we don't have any news to share right now other than it's a -- continue on the same trajectory as when we last talked. Similar to my answer to Tom earlier is that a lot of these announcements are kind of out of our hands. I would love to announce the multiple deals that I'm aware are already signed, but we can't because the brands would prefer to announce when they are prepared to announce which we are respectful of being a good partner and wanting to help them build a long-term digital business.

And in fact, many of these cases having these restaurants build their own technology similar to Taco Bell on infrastructure, leveraging our loyalty platform even when they are actively integrated with other marketplaces. And so if you think about the interplay, the products we have brought to the market and the rest of the ecosystem, I think you can get pretty creative on how it all works together. So I think the enterprise brands we're talking to, like I said, are really excited about what we are bringing. They -- no one else is sharing customer data because of the way that we're partnering we are able to and that is a dramatic, like I said in the comments, game changer for the industry. And I think it's going to be interesting to see how the brands respond to that offering.

Ron Josey -- JMP securities -- Analyst

Thanks, Matt. Super helpful.

Operator

Your next question comes from Jeremy Scott with Mizuho. Your line is open.

Jeremy Scott -- Mizuho -- Analyst

Hey, thanks, good afternoon. Just on the enterprise model, you could talked about the need for restaurants to own the customer data not just rent it. Obviously something that we are hearing more and more from operators, especially now there is that rush of investment. So with Just Salad, can you just share some insight on the process of conversion? And then just more generally on the enterprise model? It seems like from our conversations that operators are scrambling to capture every incremental dollar in delivery at for the moment. Lot of that subsidized by private capital as you mentioned. So how do you nail them down to a smarter system in that environment?

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Are you asking how do you nail down the enterprise brands of restaurants to a smarter system?

Jeremy Scott -- Mizuho -- Analyst

Yes. How would you convert a restaurant that is using multiple different systems and capturing every delivery dollar to a smarter more exclusive system with you?

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Sure. Sure. I mean honestly that's where we came up with the own versus rent paradigm and it is resonating with restaurant management teams. I think we gave a talk recently at a conference. And the whole point was buy versus rent. And I think we put up a slide, which showed on a similarly sized enterprise relationship over the course of the year, brands such as Taco Bell which has partnered -- integrated deeply with us, we shared the data and a brand on a competitive third-party delivery platform, that's exclusive on that platform, that would be roughly the same size. If you hypothetically put them up together, you had this, call it same amount of volume. You're basically paying not exactly the same, but in the same ballpark at the -- they're generating generally the same revenue for the restaurants, generally same profitability for the restaurants. And the bottom line of this chart is that the end of the year what does that restaurant have? And on the Taco Bell grub side, Taco Bell has 1 million whatever making that number up plus customers that they can then enter in the loyalty program, remarket to, follow them as they come back to their stores and really make their future marketing far more effective. And there is a big goose egg zero on the bottom of the other side of that column. Because the brands don't get anything, they're simply renting. And so the concept of publicly stating that you're exclusively renting is just dumb. And so that's how we're converting these enterprise brands to come across on our platform. Because we can say digital is a huge part of your business going forward, we all know this. You don't have a realistic way to have a long-term profitable business when third-party platforms are pulling 30% off of every order in perpetuity. So why don't we help you and provide you a transaction engine and provide you support for a branded marketplace and provide you loyalty tools which by the way you're paying for anyway.

That all integrates with a growth platform so that when you want to search growth you may and then you can pull that in and execute your own marketing strategy with your diners and you can have a different economic situation that if you're fully reliant on a third-party platform. And that argument is a slam dunk every single time you have it. So really it's a matter of how quickly can restaurants make decisions, how quickly can we integrate. I think you saw with the Dunkin. Dunkin's clearly a high priority partner of ours. So we -- it was all hands on deck and we were able to achieve a 6-week integration to get that done.

And then the next question is how deeply are these restaurants willing to integrate? KFC is all in. Everything we offer, they said, yes. That is a very intelligent decision for them and we're going to do everything we can to show incredible success for that brand. Taco Bell, another deep, deep partnership. And Taco Bell wants to build their own app which is absolutely fine. We support that decision. We support them as aggressively as we can. They don't have their app out yet which I think if we did it we might have been able to do that for them. But these are choices that they can choose how deeply to integrate and how much to leverage our system.

Jeremy Scott -- Mizuho -- Analyst

I guess and maybe just a follow-up on that. It seems like some of the competitive activity we're seeing in the marketplace even if it's not sustainable runs the risk of impairing the value of the delivery service both for the restaurant and the customer. In other words, it's conditioning customers to expect low fees or operators to expect their delivery to be subsidized. I think the fear is that that's more permanent than temporary. So I guess when you look at a couple of years, do you imagine that the industry evolves into this razor-blade model where the delivery services themselves are (inaudible) and the services that you guys are arguably -- have a lead on, the CRM, the loyalty, the white label apps, that's the razor blade that you can really can capture the margin?

Adam J. DeWitt -- President and Chief Financial Officer

Yes I don't -- this is Adam. I don't know if the razor blade is the right analogy. But I think what Matt is saying is we're building -- first of all, if you think our business as a balanced marketplace, right, there is a balance of larger brands and we just spent a lot of time talking about why we're valuable to them and how we can build a real valuable partnership with them that generates shareholder value. But we also have 70,000 independent restaurants, right, that we work with as well. And so you need to have a very broad marketplace and generating revenue from different places to create long-term shareholder value. I mean, in terms of what happens over time, it's not, as Matt said, it's not this concept of how it likely to be tis concept of hard exclusivity, but partners will want to work with folks and do marketing campaigns, loyalty programs et cetera that drive more volume on platforms that are tightly integrated with. So on the enterprise side of the house, that's where we are and then on -- but we're also very highly focused on building out the independent side of the house as a well where we are providing a lot of orders and sustained demand gen for those partners.

Jeremy Scott -- Mizuho -- Analyst

Okay. Thank you.

Operator

Your next question comes from Brian Nowak with Morgan Stanley. Your line is open.

Brian Nowak -- Morgan Stanley -- Analyst

Thanks for taking my question. I've two. Just to go back to the comments you made on last quarter's call. I think there is a lot of attention to the 2020 hop-off and kind of that $40 million to $50 million of EBITDA that you mentioned last quarter. You said you believe that base of EBITDA is where you continue to grow and should be closer to that figure. Is that still the way you're thinking about 2020? Or given the opportunity to invest to grow, should be more (inaudible) to see it as you're going to reinvest in marketing to continue to realize your overall opportunity? And then the second question is on the sort of going back to Ron's question around faster growth. How do you think about adjusting the consumer delivery fee to potentially bring more people into the ecosystem to grow faster?

Adam J. DeWitt -- President and Chief Financial Officer

All right, so I'll take the EBITDA comments and I'll let Matt talk about the diner facing pricing thing. I think the way that we talked about it last quarter and the way that we're thinking about it hasn't changed, right, which is we're building this path back to a similar EBITDA per order, right, and you can put that on top of whatever you have in your estimates for 2019 growth. And that's where we built be it from an exit rate, but that hasn't changed and that's what I'm trying to get across in the prepared remarks and then I think with the earlier question. But we think we're very much on track for that EBITDA per order that you would apply to whatever you're seeing in the fourth quarter in terms of plans right now, right? In terms of investments and will we make them, we're telling you what we know right now, right? And I think we've always said and my answer to Ron earlier, we think about investing in marketing and acquiring diners based on the value that we're getting. I think what we're -- our current view is what we shared which is we expect to be in that place exiting 2019 and heading into next year. And to be clear, those -- we're going to see -- and the reason that we get there from $1.09 to that mid buck 50s number is really about efficiency, right, and continuing to grow into these markets where we are. As you saw, we took a really good significant step-up from the fourth quarter to the first quarter, and we think we're going to continue to make some inroads for the rest of the year there. And we also -- last year, we acquired a lot of engineering and product talent. And so we're kind of -- we're growing into our skin a little bit, if you will, throughout the remainder of 2019 as well. But we feel really good about that.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

And Brian, in terms of fees, I just want to point out first because I don't think it's well known, but we have consistently the lowest consumer prices and fees -- transactional fees because of our strategy of partnering with the restaurants because that allows the restaurants to subsidize a majority -- maybe not a majority, a large portion of the transactional fees. And by having over 70,000-some-odd independent restaurants the -- all of our relationships right now are partnered, the restaurants are paying us a commission, that's obviously not the case across the board and it's been documented actually pretty well in endless reports as well as in the press of seeing diner-facing fees by most if not all of our competition. It gets brushed aside, but we believe very strongly that in the long term consumers really do care about transactional fees. I think it must have been Jeremy or Ron who brought up huge subsidization on the diner side. And I think I think it's -- I think we saw that it maybe a year or two ago. I think now what you are seeing is fleecing customers through egregious fees that are frequently hidden in the taxes and fees section where the diners don't even know what's hitting them until they get their credit card statement at the end of month, if they even check. So you can look on Twitter if you want to see some pissed off consumers figuring out how much they pay for their delivery.

But I continued to believe strongly that it's important that you have the lowest transactional fees because as many of you know that's Econ 101. So in terms of how you display the fees, this comes back to our AB testing focus. We're always AB testing on all of our consumer-facing platforms, includes not just the size of the font and locations of the buttons but the size of the images, the product experience itself and including the different fee levels, the amount of fees and the way that we display those fees, and what we are measuring in all of these cases is how it affects diner behavior and specifically lifetime value.

So just so I'm clear, we always make sure that we're communicating to the diner exactly what they're paying for in the clearest way possible. We are not hiding fees. We don't want to do that. We want to be transparent with our diners. And then whenever we do make changes to our platform and this includes to our fee structures, we know from our testing that it will result in greater value to shareholders.

Brian Nowak -- Morgan Stanley -- Analyst

Got it. Thanks.

Operator

Your next question comes from Mark May with Citi. Your line is open.

Mark May -- Citi -- Analyst

Thanks for taking my questions. I appreciate it. Maybe the first one might be for Matt. I thought your comments earlier around the exclusivity and sharing of partner data and being much more of a partner and the rent versus own kind of comment, really interesting. Just curious if other marketplaces continue to not share customer data and not pursue other partner-friendly practices like you guys are now, do you think we could actually see a change in the trend that you highlighted earlier where restaurants are trending away from exclusive arrangements -- meeting with Grubhub -- if Grubhub remains the only one allowing this sort of owning and sort of renting, could you actually see more not less exclusive or exclusive white deals? And maybe more of a question for Adam, with the KFC national launch likely happening at some point this year I'm guessing, sounds like kind of based on your comments earlier although outside your control. Just wanted to understand if we should expect a similar kind of delivery promotion like you had with Taco Bell that would obviously help diner acquisition presumably but also have little bit of added near-term costs associated with it? Thanks.

Adam J. DeWitt -- President and Chief Financial Officer

So I'll jump in on the KFC question real quick and I'll let Matt talk a little bit about the exclusivity. So I think it was in Matt's prepared remarks. We're certainly working through with KFC, the timing of the launch on their branded app and the co-marketing campaign and still working through the details. It may or may not have a component of free delivery in it. We just -- we have to work through all the details and the timing; in general, really excited about what we are seeing from the KFC customers at this point similar to what we saw from Taco Bell even prior to the Taco Bell campaign it's a really powerful tool to help acquire new diners on the platform who are extremely loyal but also order from -- loyal to the platform and loyal to KFC but also see that there is other restaurants on Grubhub that they can order from as well and take advantage of it. So we are certainly excited about figuring out the timing and the details of a more aggressive launch with KFC.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Yeah Mark, it's actually a great question. I'm happy to share my thoughts in there. I think it is going to be hard for third-party platforms that have not built the infrastructure that we have built including the ability to support rented applications POS integration, loyalty programs to assist restaurants. I think it's going to be very hard for other platforms to share the data, because frankly if you're in a rental situation and you share the data like there is no future value for you in that partnership and you will be discarded for the commodity that you are. So what I think -- the other thing about exclusivity and it sounds -- like exclusivity sounds great, but -- I'm probably not most -- I'm going to say a lot of our competition are non-contracted by default.

So when it -- so Taco Bell is exclusive to us but if you go on Postmates or DoorDash, you will see a lot of Taco Bell's and it's not because the franchisees have signed up, it's because they are listed without their consent and the courier is walking and swipe the card. So exclusivity for us really isn't that big of a deal because we know that even if we get these exclusive relationships, they are still going to be mimicked on a non-contracted basis which is we all know from the last earnings calls, an additional $5 to $10 which are either going to get by fleecing the consumer or stealing from your drivers as we are seeing our competition stealing tips from the drivers, I know, because a recent lawsuit about it which is egregious, repulsive, but I won't go that way. But you see -- so we're like -- we're OK without exclusivity frankly because of this -- like we -- the way I see the model working in the future is like to say KFC because they're completely partnered. I'm fine if KFC wants to spend money on other platforms because if you think about it from their perspective they get more value out of our platform than anyone else. So if you're on their marketing team, you're thinking, if I have a $1 million to spend, I'm going to spend as much as possible on Grub because they get the most value out of that. And if they still have more money to spend and that they can't spend enough -- all of it on our platform, then they will surge into another platform which has another pool of diners and maybe they can find some advantage and even thought it's short term, but that's their choice. But I see it as, if we can be the most integrated -- the most partnered, the most supportive and the most value, we're going to get all the money from their marketing budgets that we can take for the demand gen we can generate and then if we are not able to support them for whatever remaining dollars they have to spend, it's a free market, they can spend that wherever they want. It's funny because -- and I don't know if Just Salad fits into this category or not. But we have a lot of restaurants that are choosing to go exclusive with us not because we are asking them to or (inaudible) them to, but because they want their customer data. And I think that's extremely reasonable. So they don't want to pay other platforms to bring them diners that they can't track or even know who they are or bridge to their in-store purchases. So it's almost like -- no we're not asking for it, but they want the data, so they want to be exclusive on us. And that's where I see some of this exclusivity playing out in the future.

Mark May -- Citi -- Analyst

Thank you.

Operator

Your next question comes from Heath Terry with Goldman Sachs. Your line is open.

Heath Terry -- Goldman Sachs -- Analyst

Great. Maybe to spin us in a slightly different direction given some of the other things going on in your business. As you guys have integrated some of the acquisitions and in particular the services with those acquisitions offer that maybe go beyond and really thinking about the pick-up options that you are seeing or beginning to rollout point of sales integration. Have you seen any change in sort of the mix of business from a daypart perspective, from a profile of the type of consumers that you have got. Just really trying to get a sense of sort of what some of these newer -- some of the newer functionality that restaurants are getting access to on the platform potentially means for broader growth in GFS?

Adam J. DeWitt -- President and Chief Financial Officer

So, Heath, I'll take the tactical part of the question and then I'll let Matt talk little bit more about because I think there are some exciting things that we are doing from a product perspective. I think a lot of the stuff that we were talking about both from an enterprise perspective and I think Matt will give some more details on the pick-up product, it's really early to say that it's having a transformational impact on our 19 million diners. We're really excited about the things that we do. You don't see it in our numbers yet but I think that that's actually a big positive because I think as you're hinting at, it's a very large opportunity. But I think Matt can dive into some of the exciting things that we are doing with whether working on specifically related to the Tapingo acquisition and some products that we are working on that real address that pick-up opportunity.

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Yeah, Heath, I definitely want to echo what Adam is saying in that it's early days. I think the offerings we're bringing to market are extremely unique including the Tapingo products, we are able to offer the entire spectrum of digital technology to restaurant brands whether they are enterprise or independent from the consumer-facing app all the way to the kiosk at the restaurant with optical payment for a walk-in consumer fully integrated with loyalty. I haven't been saying a lot about pick-up today and it's just an accidental omission because pick-up clearly is extremely important when you're talking about a brand like Dunkin, and the effectiveness of a loyalty program.You can't just do loyalty for consumers that are ordering delivery through a third-party platform. If loyalty is holistic and inclusive, and it is branded applications for delivery or pick-up, third-party platforms for delivery or pick-up, or walk-in for pick-up and we -- our ordering technology bridges the entire spectrum and that's part of the reason this is so exciting for them.

So to your question, are you seeing different segments or use cases, not really probably because it's really early days. I know that in markets, in university markets where Tapingo has been fully rolled out, and you see extremely high velocity pick-up orders, you do see patterns changing because students know they can order their pick-up and it's going to take 13 minutes. And so they can hit that order 13 minutes before class is out and they walk over and grab it. You see that the peak periods even out for the restaurant operators which is a really nice. You see the lines get a lot shorter, so they see more volume, you don't have people walk away when the lines are too long. So I think we will see consumer ordering habits changing with the ubiquitous introduction of technology across pick-up and delivery, we haven't seen it yet, but it's coming.

Adam J. DeWitt -- President and Chief Financial Officer

And Heath, just to clarify, I was answering the question from a Grubhub marketplace perspective. But helpful to point out that both between LevelUp and Tapingo, there is hundreds and thousands of pick-up orders a day that are being transacted through there and they have the dynamics that Matt talked about obviously different dayparts and very different use cases. So that's why we're so excited about expanding those products and bring them to the Grubhub marketplace as well.

Heath Terry -- Goldman Sachs -- Analyst

Okay. Great. Thank you very much.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 68 minutes

Call participants:

Adam J Patnaude -- Head of Corporate Development and Investor Relations

Matthew M. Maloney -- Founder, Chief Executive Officer and Director

Adam J. DeWitt -- President and Chief Financial Officer

Jason Helfstein -- Oppenheimer -- Analyst

Tom Champion -- Cowen -- Analyst

Ron Josey -- JMP securities -- Analyst

Jeremy Scott -- Mizuho -- Analyst

Brian Nowak -- Morgan Stanley -- Analyst

Mark May -- Citi -- Analyst

Heath Terry -- Goldman Sachs -- Analyst

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