Grove Collaborative Holdings, Inc.

Greetings and welcome to the Grove Collaborative Holdings fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this call is being recorded. I will now turn the conference over to our host, Alexis Tessier, Investor Relations Advisor. Thank you. You may begin.

Hello, and thank you all for joining us today. With me on today's call are Grove's co-founder and CEO, Stuart Landisberg, and CFO, Sergio Cervantes. Before we get started, I'll quickly cover the forward-looking safe harbor statement. Some of the statements that we 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 filings with the SEC, 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 it over to Stu.

Thank you, Alexis. Hello, everyone, and thank you for joining our earnings call today. In 2022, we laid out our value creation plan with a goal of achieving profitable growth in 2024. And I'm pleased to report that progress against this strategy drove full-year results that were ahead of our guidance on both top and bottom line for 22. Our value creation plan is built upon four pillars, improved marketing efficiency, omni-channel expansion, net revenue management, and operating expense discipline. And we made progress on each during the fourth quarter. We have leveraged this value creation plan to make important strides to profitability over the course of the second half of 2022. Now, you will hear our growth talk more about the growth drivers for 2024 and beyond, starting with today's call. In 2023, we will have challenging comparables to 2022 when we overspend on marketing. That marketing overspend will benefit cohorts through the beginning of 2023. But as revenue stabilizes in the back half of this year, we are working to set ourselves up for growth in 2024. Our strategy for 2023 is to drive our core business to profitability while investing in three levers for material upside potential. The first is channel expansion into retail, which I've discussed previously and will talk about more on this call, category expansion into wellness on our GTC site via Grove Wellness, the launch of which we announced today, and three, mergers and acquisitions, including through our partnership with Humanco that we announced last quarter. We think this approach allows us to continue to push the overall profitability and growth while leveraging our unique market position for above-industry long-term trends. Now, onto our fourth quarter results. Marketing efficiencies continue to improve on lower spend levels across channels, particularly in paid social and organic. In fact, our fourth quarter saw the lowest CAC since 2020. In addition, we have further enhanced our segmentation, targeting, and creative with the new marketing technology stack we rolled out in 2022. We are pleased with the initial impact on customer engagement and anticipate that results will accelerate through the year as we further refine our capabilities. We continue to make progress in our omni-channel distribution expansion, though the retail rollout has been slower than initially anticipated. We recently announced the official launch of Groveco, our flagship zero-waste home care brand on Amazon, at select Walmart stores nationwide and on walmart.com. The Amazon launch was facilitated by learnings gained from our plastic-free personal care brand, Peach Not Plastic, which is approaching $1 million in lifetime sales on Amazon since its November 2021 launch. We remain excited about this growth strategy that is not only extraordinarily capital efficient, but puts Grove products in the places where over 90% of purchases in our category are made. During the fourth quarter, we also implemented several net revenue management initiatives focused on strategic pricing, both on third-party and Grove brand products, and on optimization of DTC net revenue priorities. These initiatives are particularly important in this environment where inflation remains stubbornly high, and while consumer response has been in line with our expectations, we are continuing to monitor our consumers' price elasticity in response to these actions. Lastly, by maintaining strict expense discipline, we've been able to streamline our operations and redirect resources towards initiatives that are most aligned with our objective of maintaining profitability while investing for long-term future growth. Successful execution of this four-part value creation plan drove market improvement in our financial results throughout the year. Adjusted EBITDA loss in the second half of 2022 was $19.1 million as compared to a loss of $60.7 million in the first half of 2022, a staggering improvement of $41.6 million as we implemented our VCP. In the fourth quarter, adjusted EBITDA loss was $9.5 million as compared to $9.6 million in the third quarter of 2022 and $25.2 million loss in the fourth quarter of last year. Margins declined 50 basis points sequentially and improved 1,610 basis points year-over-year and came despite lower revenue as we strategically cut back on advertising spend to focus on the most efficient channels. It's also worth noting here that once we removed the impact of non-cash items, gross margin and EBITDA margin went up both sequentially and year-over-year. Sergio will give more detail on that in his sections. Revenue in the fourth quarter was $74.0 million as compared to $77.7 million in the third quarter of 2022. While the reduction in advertising spend has resulted in year-over-year comparative pressure on revenue, our current efforts to improve advertising efficiency have driven strong results, and we remain confident that it is the right step to position ourselves for profitable growth in the future. During the quarter, we continue to make progress towards our goal of being free from single-use plastic waste by 2025. In the fourth quarter, 65% of Grove Brand's net revenue came from either zero plastic, reusable, or refillable products, meaning the company's beyond plastic standard, up significantly from 49% in the fourth quarter of 2021. We also improved on plastic intensity, or pounds of plastic for $100 in revenue. Sitewide and through our retail partners, plastic intensity improved to 0.98 pounds of plastic per $100 in revenue from 1.21 in the fourth quarter of 2021. And across all Grove Brands, plastic intensity moved from 0.80 pounds of plastic per $100 in revenue from 0.99 in 4Q21. We challenge others to disclose the same metric as we lead the industry in our move away from plastic. And I'm pleased to report that every sustainability metric in this paragraph is a record for growth. As I mentioned, one of the things I am most excited about is that we have line of sight to stabilizing our core business despite the challenging environment as we lap advertising as we lap the advertising overspend in the first half of 2022. We are investing in new capabilities in our communication stack and doubling down on benefits for our best customers to improve retention and set the stage for growth. I've already touched on the omni-channel distribution opportunity, so I'd like to take a minute to discuss the two other growth levers, wellness and M&A. Today, we announce the launch of Grove Wellness. Wellness is a massive market with dietary supplements alone expected to reach 53 billion in the US in 2023. Grove has always been known for curation on the basis of efficacy, sustainability, consumer centricity, and innovation in a complicated world. As we investigated our consumers pain points, an exciting 89% of respondents said they would trust Grove over other brands to provide them with wellness products. Consumer trust has never been more important as claims and bad practices abound And there is no true sustainability leader across the wellness space. And we are excited to help our consumers find products to improve their lives and see how they can drive sustainability into yet another category. Since our founding, our mission has been to make the CPG industry a positive force for human and environmental health. And we are excited to further this goal through our strategic expansion into wellness. I look forward to sharing more about this in future calls. The other future growth lever is Strategic M&A. During the quarter, we announced that we entered into an agreement with Humanco Investments, a subsidiary of Humanco, the mission-driven health and wellness holding company co-founded by Jason Karp and Ross Berman. Under the agreement, Humanco will help us identify, evaluate, and fund material M&A opportunities that can accelerate Grove's business and mission impact by quickly driving scale and shortening our path to profitability. Humanco has deep operational and capital markets expertise, and their founders have deployed billions of dollars in public and private companies. Importantly, Humanco shares our passion for making it easier for consumers to live healthier and more sustainable lives. After extensive diligence, Humanco acquired single-digit percent ownership in our company. We partnered with the intention of finding one or more highly synergistic M&A opportunities that has meaningful impacts to accelerate our profitable growth strategy. And to this end, Humanco has agreed to consider funding up to $100 million of new capital, as previously announced. While we remain laser-focused on continuing our path, to improve profitability as an independent entity, as demonstrated this quarter, we believe the difficult macroeconomic environment will provide step change opportunities to advance our mission and create meaningful shareholder value over the coming quarters and years. We plan to leverage our capital and strategic partnership with Humanco to evaluate exactly those opportunities that would allow growth to emerge stronger and better positions for growth, and that we think could create step changes in shareholder value. We are confident that we will achieve stable profitability of our business through continued execution of our value creation plan, and that we are investing in the right strategies to drive future growth and increase market leadership. Before I turn the call over to Sergio, I want to thank all of our team members for the hard work they do each day. Your commitment to our customers and to our mission is what makes everything possible. It is a true privilege to work alongside each of you. And now, I'd like to turn the call over to Sergio to review our financial results in more detail. Go ahead, Sergio.