Grove Collaborative Holdings, Inc.

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Good afternoon and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.' 's third quarter 2023 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 questions. As a reminder, this conference is being recorded. Hosting today's call are Grove's CEO, Jeff Yerkeson, and CFO, Sergio Cervantes. Before they begin their prepared remarks, I will review the forward-looking statements, Safe Harbor. Some of the statements made today about future prospects, financial results, business strategies, industry trends, and Grove's ability to successfully respond to business risks may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All of these statements are based on Grove's view of the world and their business as they see it today. As described in their SEC filings, the underlying facts and assumptions for these statements can change as the world and their business changes. For more information, please refer to the risk factors discussed on their most recent filings with the SEC, which are available on Grove's Investor Relations website at investors.grove.co. During today's call, they 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 their earnings release, which is also available on their Investor Relations website. I would now like to turn the call over to Jeff Yerkeson to begin.

Thank you, operator. Hello, everyone, and thank you for joining the call today. I want to start this call by saying how honored and excited I am to be joining Grove as CEO. I'd like to thank my predecessor and our executive chairman of the board, Stu Landesberg, the board of directors, the Grove leadership team, and all of our employees who have put their trust in me to lead the next chapter. They have all been incredibly supportive during my transition. I joined Grove because fundamentally, I believe that every individual can make a positive impact and drive change beyond themselves. What unites Grove's team is that we are all committed to a singular purpose, one that is bigger than ourselves. We create and curate high-performing, planet-first products and aspire to transform the consumer products industry into a force for human and environmental good. Having followed Grove for some years before joining, I had made a number of assumptions about the business. And after 75 days into the role, I am reaffirmed by four core themes. First, we have an incredible brand. Grove is the leading platform for natural shoppers and is well positioned with our customers, including both active customers and those that haven't made a recent purchase, but continue to come back to us because they believe in our mission. When you listen to these quote, inactive customers, You realize they too love our product and brand. With the home and personal care market amounting to roughly $180 billion, we know there is room for our trusted brand to grow. Second, we are the leaders in sustainable home care and have strong potential to expand beyond that category. Our formidable foothold in home care is an entry point and a springboard for Grove to expand our presence deliver innovations, and launch wholesale into other categories that are relevant to natural shoppers. We can do this because of the trust we've built in our core products and offerings. We said we would expand into health and wellness, and we are doing it. Week by week, more customers continue to trust us for their broader, sustainable needs. Third, we have best-in-class talent. The Grove team is one that has made difficult decisions. endured cost-cutting measures, and worked through unfortunate but necessary reductions. And yet, our employees, teams, and the broader culture are incredibly strong, resilient, and united around our mission. I am deeply impressed by the team and energized by what we can accomplish together. Fourth and lastly, we have a strong business foundation with great unit economics and are well positioned for profitable growth. This won't happen overnight. but the longer-term goals seem reasonable given secular trends around natural shoppers and convenient digital experiences, both of which will benefit us as we go forward. Our brand, leadership, talent, and strong foundation are what have gotten us to today. I'm proud of the team's results to achieve positive, adjusted EBITDA for the first time this quarter. It demonstrates that we do what we say. This focus on profitability remains priority number one for the company. We will maintain this focus while we reshape our customer experience and culture. And our culture will start with the customer at the center of every decision. We will systematically listen to customer needs and innovate to unlock new growth paths in the next year. I have succeeded two founders. grown B2C businesses to a billion-plus dollars, and know how to profitably scale a business like Grove. I have seen firsthand a number of positive things in my first 75 days that have made me confident that we have what it takes. And while I remain focused on profitability in the near term, I did not join Grove just to ensure it is profitable. We have a lot of work ahead of us, but I see a clear path for profitable, sustainable growth. I plan to prioritize profitability and to ramp up growth behind an improved margin structure and customer experience that we will build in the coming months. As a result, I'm comfortable with 2024 revenue below 2023 because I'm confident by the end of 2024, Grove will be growing sequentially with positive adjusted EBITDA and will exit the year with ongoing profitable growth for the quarters to come. And I know how to get us there. First, it starts with becoming even more meaningful in the lives of our customers. This will be through systematic, consistent, data-driven decisions to serve natural shoppers and expanding our role as the trusted brand and platform that helps customers make the right sustainable decisions for themselves, their families, and their homes. Second, we will win with sustainability as our point of differentiation. This means leaning into our mission, being even more focused on our environmental impact through plastic, carbon, and deforestation offsets, and customer education on the sustainable alternatives that exist today and that are coming tomorrow. These inputs will lead to results. In the long term, we are well positioned to be the trusted brand and platform for high-performing planet-first products for natural shoppers and their homes. And now we'll turn to the results. I am incredibly pleased to share the current third quarter results, which represent cumulative quarters of great work, difficult decisions, and smart planning by the team. To start, this quarter marks the first quarter of positive adjusted EBITDA in the company's history, a massive step in our journey towards becoming a growing, profitable organization. We are in the midst of a transformation at growth, and today's results prove that point. While it's not the finish line, it is a notable accomplishment worth highlighting, and one reached far sooner than we had previously thought possible. We do not expect a positive adjusted EBITDA in every quarter going forward, but this result highlights the massive improvements growth has made over the last two years. Again, I want to give kudos to the team for the incredible work that went into driving this result. Adjusted EBITDA in the third quarter of 2023 was positive $0.2 million, up from a loss of $2.6 million in the second quarter of 2023 and a loss of $9.6 million in the third quarter of last year. While not a comparative period, it's worth highlighting that our Q1 2022 adjusted EBITDA, which was just seven quarters ago, was negative $40 million. the holistic P&L transformation has been truly incredible and rare among our industry. This improvement was achieved despite revenue declining in the third quarter, which was down 6.6% sequentially and 20.6% year over year. The revenue decline continues to be impacted by the advertising spend reduction, which was down 53.1% in the current quarter when compared to Q3 2022. As we eliminate our lowest performing marketing spend, maximize our return on investment, and continue our aggressive push to sustain profitability. Even at lower levels of spend, we are pleased with the results and continue to see strong performance in unpaid channels. Contributing to current quarter performance and continuing the trend from prior quarters were new records for net revenue per order and gross margins. Net revenue per order improved to $65.24, increasing from $64.82 in Q2 of 2023, our previous record high. Furthermore, gross margin increased 190 basis points from last quarter to 53.8%, and was 180 basis points higher than our prior record in Q1 2023. We're excited to continue moving the needle on these important metrics. We will remain focused on profitability, finding leverage across the P&L. We've already discussed our marketing efficiency and net revenue improvements, so now I want to highlight our progress on omni-channel expansion and operating expense discipline. Meeting our customers where they shop is critical to our objective of making planet-friendly household essentials as accessible as possible. We continue to balance growth in the retail channel with our overall profitability objectives. ensuring our growth strategy is capital efficient. During the quarter, we are excited to share that we expanded our retail distribution to include Kihi and Wegmans. We have over 420 Kihi points of distribution and are in approximately 50 Wegmans stores, with the expectation of being rolled out to 100 locations by year end. These additions take our retail footprint to over 7,500 brick-and-mortar locations, Our business and retail has been a learning experience, and I'm energized by the partnerships that we have with critical retailers and can see the progress in both product and in the numbers. I believe many other brands would be envious of our current shelf positioning. We also continue to make progress on Amazon, where we increase our SKU assortment to include laundry, room spray, and other product categories. expanding on the product lines launched in the prior two quarters. In the six months since we've launched our flagship brand, Groveco, on Amazon, we have over 900 positive customer reviews. Again, our business is effective because customers love our product. We are not only focused on improving operating efficiency in the retail channel, but across the entire P&L. Even with the massive improvements in operating expenses over the last seven quarters, which are down 58.5% from Q1 2022, we continue to make progress. With my own fresh eyes, I see additional opportunities for the organization. Current quarter operating expenses are down 38.5% year-over-year and 14.9% quarter-over-quarter. While a portion of the reduction is due to lower variable costs from fewer orders, we are seeing the benefits of our outbound carrier mix optimization driving down shipping costs. We also see it in the elimination of duplicative or unnecessary vendor spend, the optimization of advertising channel allocation to ensure the highest return on our investment, and smaller teams allowing for more rapid decision-making. I've been impressed by the entire organization's relentless work and difficult decisions to streamline our expense structure. This focus needs to and will persist. We continue to see opportunities across the P&L to find points of leverage that will improve our economics and will enable us to be both profitable and growing in the near future. As we look to the future, I want to share my vision for Grove and how we will focus our overall efforts to grow and scale the business. Today and moving forward, we will remain focused on one, customers, two, sustainability, and three, profitability. We are in business because of our customers. We are here to serve them and be their trusted destination to find high-performing, planet-first products. Sustainability is our foundation and our differentiation. It's why we are unique in the industry, and profitability is a necessity. I'm going to start most discussions with our customer in mind, and you will hear us talking more and more about our customers on earnings calls. It's through increasing value to customers that businesses create sustainable growth. We are excited about the VIP program, and during the third quarter of this year, we launched the VIP Hub. This new feature provides our VIPs with exclusive benefits, including samples, earned gifts, discounts, and early access to limited edition collections. We are thrilled to provide our best customers with more value, particularly in the current economic environment. and reward them with newness through a dedicated program. While it is a recent launch, we are excited by the early trends. Additionally, our customers told us they want more selection. The tenants guiding our category expansion are high, including strict ingredient standards and providing transparency and education to customers to help them on their sustainability journey. The expansion into the health and wellness category has proven that customers continue to place high trust in Grove and are open to Grove's recommendations and selection beyond cleaning products. Since Q2 2022, we have nearly doubled the percent of orders containing a wellness SKU. Though health and wellness products continue to make up a small percentage of our total sales, expanding our assortment continues to be a focus. Our initial launch was focused on multivitamins and other daily regimen products to drive repeat orders. We look to expand into other subcategories to round out our selection and make Grove a destination for all of our customers' wellness needs. Furthermore, during the quarter, we implemented an improved search, browse, and sort experience on our website and mobile application that we expect to vastly improve the customer experience. These innovations will make it easier and more seamless for customers to find the right products at the right time. These changes will facilitate more health and wellness penetration and set us up well for further cross-category adoption. And while we're talking about customers, I also want to discuss some new products. In Q3, we launched our Holiday Limited Edition Collection, Eves of Enchantment, featuring peppermint bark and balsam fir scents, delivering the newness that our customers want as well as providing sustainable alternatives for popular seasonal products. And we have been pleased with the early interest and results. Turning our focus to sustainability. Research and development remains a top priority for us as we continue our market leadership in sustainable products, especially in our replenishment categories. In Q3 2023, we finalized 2024 plans to make additional packaging updates across select SKUs. to ensure they are made of some of the most sustainable materials available. While developing a robust innovation pipeline for the new year, we look forward to launching these products in the coming quarters. Lastly, we'll turn to profitability. This is job number one in my eyes. This has been and needs to remain a core focus. We can't chase a sustainable mission without a sustainable business. We will continue to make decisions that prioritize the bottom line by one, expanding gross margin. Two, focusing on customer experience to drive retention. Three, increasing assortment to grow lifetime value. Four, improving advertising efficiency. Five, increasing our SG&A leverage through more efficient spend. And six, seeking efficiencies across our fulfillment ecosystem. In the long term, We see ourselves as a scalable platform for high-performing, sustainable products. On that theme, we continue to explore M&A as a potential strategy to provide step-change opportunities. The bar for action is high, and we are deliberate with how we invest time and resources. To close out our key business updates, we turn to the cornerstone of our sustainability innovation, plastic intensity, or pounds of plastic per $100 of net revenue. We are proud to publish the industry's first plastic intensity metric. Our hope is that other brands and retailers will follow suit as we work to reduce plastic in our industry. This quarter, we adopted an expanded definition of plastic that includes polyvinyl alcohol, PVA and PVOH, silicone, and plastic liners and resins with aluminum packaging to ensure even more transparency in our plastic intensity. Some in the industry might debate the definition of plastic, but we are using a more inclusive definition to continue to raise the bar for ourselves and others. We have updated the following metrics in their quarterly comparisons to account for these changes. Across the grove.co site and through retail partners, Plastic Intent City was 1.11 pounds of plastic per $100 in revenue in the third quarter of 2023. down slightly from 1.14 in the third quarter of 2022. Specifically, across all Grove brand products, plastic intensity was 1.14 pounds of plastic per $100 in net revenue in the third quarter of 2023, in line with 1.13 pounds in the second quarter of 2023, but up from 1.04 pounds in the third quarter of 2022. Our Grove branded 100% Recycled plastic trash bags are the primary driver of year-over-year plastic intensity increases for Grove brands. Excluding this product category, Grove brand plastic intensity was 0.63 in the third quarter of 2023, in line with previous quarters. Overall, we are encouraged by the growing trend of more customers opting for recycled plastic garbage bags instead of virgin plastic. We are continuing to explore ways to reduce plastic in this category, while providing customers with an effective product experience. I will now turn the call over to Sergio to review our results in more detail. Sergio, please go ahead.