Grove Collaborative Holdings, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.' 's third quarter 2022 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open your lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Alexis Tessier, Director of Investor Relations, to begin.

Thank you, Operator. Hello, and thank you all for joining us today. With me on today's call are Grove's co-founder and CEO, Stuart Landesberg, and CFO, Sergio Cervantes. Before we get started, I'll quickly cover the forward-looking statement, Safe Harbor. Some of the statements that we will make today about our future prospects, financial results, business strategies, industry trends, and our ability to successfully respond to business risks may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause our actual results to differ materially. All of these statements are based on our view of the world and our business as we see it today. As described in our SEC filings, the underlying facts and assumptions for these statements can change as the world and our business changes. For more information, please refer to the risk factors discussed in our most recent SEC filings, which are available on our investor relations website at investors.grove.co. During today's call, we will also discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in our earnings release and supplemental earnings presentation, which are also available on our investor relations website. With that, I'll turn the call over to Stu.

Thank you, Alexis. Good afternoon, everyone, and thank you all for joining us. On today's call, I'll start with a brief overview of Grove before reviewing our performance in the third quarter and discussing how our value creation plan is positioning us for success as we lead the home and personal care industries to transformational change. At Grove, we believe that consumer products can be a positive force for human and environmental health. This thesis is consistent with the long-term trends in our sector and the inevitable transformation of the CPG industry from polluter to sustainability leader. By creating and curating products that are better for us and for the environment, we are changing the way that the trillion dollar global home and personal care industry operates. The current plastic and carbon footprints of our industry are simply not sustainable. Change is inevitable, and Grove is leading that transformation. The overwhelming majority of consumers, 84%, are concerned about plastic waste. Grove is a core innovator in zero plastic home care, and we are focused on being the market leader in solving the plastic problem our industry faces. We set the goal of being plastic-free by 2025 and aim to bring the entire industry along on our journey. Leveraging the trust from our core position in home care, we've also begun to address other categories, like personal care and wellness, that impact human health. When I started the business in 2012, we were a direct-to-consumer company offering a curated portfolio of products from the best natural and sustainable brands at home in personal care. Over time, we built a loyal and engaged user base, along with a massive and rich data set. We've leveraged this unique data, along with our strong relationships with consumers, to create our own disruptive, authentic brands of home and personal care products. The products we create, under both our flagship brand, Grove Co., the market leader in zero-waste home care, as well as under our incubator brands, Peeps Not Plastic and Goodfur, are built upon three core principles, sustainability, efficacy, and consumer centricity, which is a combination of design and price. The focus on these principles has enabled us to reach that middle of the bell curve consumer, bringing a big tent to sustainability and establishing our market-leading tradition in zero plastic and sustainable home care. Our latest limited edition collection, Twilight Wonder, celebrates the beauty of holiday traditions, and it is a prime example of how we innovate on all three pillars for consumer-centric, sustainable, and truly amazing product quality and driving success. We use limited addiction collections like these to elevate the everyday through unique and relevant designs and fragrances inspired by trends and stories, driving penetration of our brand, awareness, and overall reinforcing brand love. Our DTC platform powers our innovation cycle, providing unique data to inform our product innovation, as well as an avenue to quickly test, launch, and iterate upon new products. This ensures that when we bring products to retailers for distribution, they are already proven winners. Industry-wide, less than 10% of purchases of home and personal care products are made through the direct-to-consumer channel. With this in mind, we expanded into brick-and-mortar retail for the first time in 2021 through a partnership with Target. This has elevated our brand exposure and driven awareness. Today, we are in more than 4,000 stores across multiple retailers. up more than 100% year over year, and we expect that distribution footprint to grow in future years. We are building momentum in our retail distribution rollout as we begin to address the channel, which accounts for more than 90% of purchases in our category. Now, moving on to performance in the third quarter. Our results in the quarter reflect our efforts to eliminate unprofitable revenue and drive improved margins in order to reach our goal of profitable growth in 2024. We are very pleased with our results and progress, which was ahead of our internal expectations. For the third quarter, net revenue was 77.7 million, down 18% year over year, but down just 2% compared to 2Q22. Adjusted EBITDA improved to a loss of $9.6 million from a loss of $31.2 million in the third quarter of last year and a loss of $21.1 million in the second quarter of 2022. These reductions in losses of greater than 50% quarter over quarter reflect the decisive steps we've taken to achieve our goal of profitability. The results reflect strong execution and the valuable and durable customer base we have at Grow. They also give us the confidence to raise our full year 2022 guidance for the second consecutive quarter, which Sergio will detail in a few minutes. The year-over-year comparisons, especially in top line, continue to be impacted by the return to normalized buying patterns following elevated pandemic spend in our categories, as well as our strategic decisions to pull back on less efficient advertising spend. We believe that sequential comparisons better reflect the trends in the business as we've taken steps to position ourselves for sustainable, profitable growth. The quarter-over-quarter trends of a 2% drop in revenue with a 50% improvement in adjusted EBITDA losses speaks to our potential to drive bottom-line economics while maintaining revenue scale. While the macroeconomic environment remains challenging, our third quarter results came in strong relative to expectations driven by continued marketing efficiencies on lower spend, improvements in the direct-to-consumer net revenue per order, and the strides we've taken to streamline our operations and lower costs. During the quarter, we also continued to make progress towards our goal of being plastic-free by 2025. In the third quarter, 63% of Grove Brand's net revenue came from either zero-plastic, reusable, or refillable products, meeting the company's beyond-plastic standard, up significantly from 46% in the third quarter of 2021. We also improved on plastic intensity, or pounds of plastic per $100 of revenue. We believe we are the first in the industry to report on this statistic. Sitewide and through our retail partners, plastic intensity improved to 1.03 pounds of plastic per $100 of revenue from 1.33 pounds of plastic per $100 of revenue in 3Q21. And across all Grove brands, plastic intensity improved from 0.85 pounds of plastic per $100 in revenue from 1.14 in 3Q2021. We continue to believe that by disclosing this metric, we can encourage others to do the same and drive the industry away from plastic. On our last earnings call, we laid out our shareholder value creation plan to drive sustainable growth and expanded profits. I'll now touch upon each of the four elements and discuss key areas of progress in the quarter. The first element of our value creation plan is improved marketing efficiency. During the quarter, we continue to achieve efficiencies on lower spend, across paid social, TV, and the Performance Partnerships channel. Slight persistent media cost inflation, which we expect to continue into 2023. While we are optimistic that a silver lining of a challenged economy may be lowered media costs, we are not yet incorporating that into our forecast. In addition, we continue to roll out and optimize our new marketing stack, which will materially improve our ability to segment and target on an individual basis. We are beginning to see a positive impact on customer engagement, which we expect to accelerate next year, as we fine-tune our capabilities, and as we continue to improve the customer experience on our DTC platform. Lastly, we leveraged creative featuring Drew Barrymore, our global brand and sustainability advocate, originally launched in the second quarter, which is contributing to improved customer acquisition costs in TV and paid social and furthering brand awareness. The second element of our value creation plan is omni-channel expansion. During the quarter, we advanced our strategy of expanding distribution into brick-and-mortar retail where 90% of purchases in our category are made. We recently announced our first drugstore partnership, adding 2,200 CVS doors. In addition, we announced partnerships with Harris Teeter and HEB, two regional grocery store chains. There is a 250,000-door addressable market in the U.S., so we are just scratching the surface. We continue to generate strong interest in our brand with retail buyers, and we look forward to announcing additional partnerships as we are able. We remain incredibly excited about this capital-efficient growth channel. The third element of our value creation plan is net revenue management. We've embedded net revenue management processes in all functions across the business and categories. We've begun to test and implement initiatives focused on strategic pricing, optimizing category mix, and enhancing promotional software. We see material upside to capture through the successful execution of these initiatives in the coming years. This is particularly critical in an inflationary environment. We are pleased with our gross margins in Q3, and we hope that it will drive sustained gross margin growth over the long term. Lastly, we continue to make progress on reducing operating expenses. In August, we executed a company-wide reorganization, which included a reduction in force of approximately 18% of the corporate workforce, allowing us to streamline operations and reallocate resources to initiatives that best align with our goal of achieving profitability. In addition, our vendor audit resulted in the removal of additional expenses and accelerated our reduction in cash growth. We note that many costs are rising, but we continue to be focused on managing our operating expenses. We remain confident that successful execution of our value creation plan, along with the long-term trends towards sustainability, will position us for success. Grove is a disruptive high-margin brand with an enormous TAM, expansive white space for omni-channel distribution expansion, a strong gross margin profile, and a clear path toward EBITDA profitability. That said, the environment does remain challenging. Consumers are facing levels of inflation not seen in decades and are bracing for the difficult environment to continue. The impact is particularly pronounced in the retail segment, where traffic declines industry-wide have impacted inventory levels in the channel, along with replenishment orders. And the natural category overall is losing share to conventionals. We think the shift will be temporary, but it is worth noting. While we continue to see category-leading growth year over year and have conviction in the long-term trends to natural and sustainable products, we recognize these could continue to be headwinds in the retail channel in 2023. The economic environment is also impacting our DTC business, though we feel good about the results we saw in Q3. We have taken steps to offset rising costs and know this did lead to a modest drop in orders in Q3, especially among customers who typically place smaller and unprofitable or less profitable orders. The impact was in line with our expectations. On the positive side, we saw exceptional DTC net revenue per order of $60.63 in the quarter, inclusive of shipping and fees, which is an all-time high. Going forward, we plan to double down on the drivers of order value growth by pushing into higher margin and higher dollar categories. This will allow us to offer our consumers solutions in more categories that are a positive force for human and environmental health. Approximately 15% of our orders are over $100 today, and we believe we can drive that number up over time as we increase cross-category adoption. Finally, we are also making strategic pivots in our business as we update our digital footprint to match best-in-class practices and drive better cross-category sales. We are confident that these changes will drive long-term success, but are aware they may take time to learn into and grow to their full potential. While we are cautious going into the next year because of the macro, we believe the long-term headwinds behind sustainability are unchanged, and we remain focused and confident in our goal of profitability in 2024 and double-digit long-term growth. Before I turn the call over to Sergio, I want to thank all of our employees for everything they do to prioritize our customers, their health, and the health of the environment each and every day. We wouldn't be here without your steadfast dedication to our mission, and I am proud every day to pursue our long-term goals with you. I'd now like to turn the call over to Sergio to review our financial results in more detail. Go ahead, Sergio.