Grove Collaborative Holdings, Inc.

Good afternoon and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.' 's third quarter 2025 earnings conference call. At this time, all lines have been placed on listen-only mode to prevent any background noise. Following the speaker's remarks, we will open up your lines for questions. As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yerkeson, and CFO, Tom Siragusa. Some of the statements made today about future prospects, financial results, business strategies, industry trends, and growth's ability to successfully respond to business risk may be considered forward-looking, including statements relating to the technology platform migration resulting in an exceptional customer experience and stronger economics at scale, future advertising spend and circumstances that would result in its increase, the impact of the headcount reduction, future business plans, priorities for the remainder of 2025, future investments in growth, and guidance for 2025, including guidance relating to full year and fourth quarter 2025 revenue and adjusted EBITDA. Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those risks discussed in growth filings with the Securities and Exchange Commission. All of these statements are based on Grove's views today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. During today's call, Grove will also discuss certain non-GAAP financial measures, which adjust GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP items to the most directly comparable GAAP financial measures in Grove's earnings release, which is also available on Grove's Investor Relations website. I would now like to turn the call over to Jeff Yerkeson to begin.

I want to begin with where we're headed. Growth focus is on driving long-term shareholder value by building a stronger, more resilient business, one that delivers consistent profitability and sustainable growth. Our mission remains clear, to be the leading destination for clean, sustainable, non-toxic products for every room in the home. I recognize that some investors remain cautious, questioning whether a D2C business can truly win in a marketplace dominated by Amazon and other digital giants. But I believe there's a billion-dollar opportunity ahead for Grove in the long term. How? We must deliver a customer experience that is meaningfully differentiated, one that combines transparency, performance, and sustainability, while achieving the unit economics to scale profitably. We also need to reach those customers efficiently at scale and deliver compelling paybacks. We continue to believe that the migration of our e-commerce platform was necessary to deliver on this vision. The migration has, though, been marked by a series of customer experience challenges, issues we've worked quickly to resolve, and even as new ones have emerged. During the third quarter, we faced new challenges related to the mobile app experience, subscriptions, and payments, which collectively weighed on our results. Even with these pressures, revenue was roughly flat sequentially, down just 0.7% quarter over quarter, and declined to 9.4% year over year, our smallest decline since the fourth quarter of 2021. But here's the important part. Our engineering and product teams are more energized and confident today than they've been at any point in the past year. We've identified the issues, we know the fixes, and we're executing with urgency. There's still a lot of work to do over the next one to two quarters, but once the transformation is complete, Shopify will enable faster iteration, deeper personalization, and access to best-in-class tools that will help us deliver an exceptional customer experience and stronger economics at scale. While this period of learning and troubleshooting has led to quarterly results below our expectations, It has also clarified the path forward. Our near-term focus is improving the mobile app and subscription experience, two components of the user experience that directly drive engagement, retention, and lifetime value. At the same time, our transformation continues to be guided by four key pillars, balance sheet strength, sustainable profitability, revenue growth, and environmental and human health. These pillars provide the framework for every decision we make, ensuring that even as we optimize the customer experience, we're building a stronger, more resilient business position for long-term success. We are protecting liquidity and profitability, the first two pillars of our transformation. We pulled back advertising in September, and that discipline will continue through the fourth quarter. We'll only step up investment once the technology, is optimized and new cohorts meet clear hurdles on paybacks and projected lifetime value relative to customer acquisition costs. We also right-size SG&A to reflect our current scale, completing a reduction in force in November that is expected to deliver roughly $5 million in annualized savings. While near-term cash benefits will be offset by severance and related costs, the action was a necessary step to align our cost structure with current revenue levels and improve operating leverage as growth returns. We're also leaning into AI, automation, and technology to increase efficiency across the organization. This restructuring will pay dividends both in the near term through lower operating expenses and over the long term through a faster, more data-driven organization. We've continued to execute against our third pillar, revenue growth, even as we maintain discipline around profitability and liquidity. Last quarter, we expanded our third-party assortment meaningfully with the number of brands up 50% year-over-year and individual products up 61%. This expansion is concentrated in high potential categories such as clean beauty, personal care, pantry, wellness, and baby, with the baby category in particular showing encouraging early growth as we broadened our offerings. We believe Grove is the curated marketplace for clean, sustainable, and non-toxic products across the essential categories where customers seek mission aligned brands and high quality alternatives they can trust. Curation is central to that vision. We don't aim to be everything to everyone. Rather, we focus on being the trusted source for the customer who values transparency, performance, and environmental integrity. That said, our near-term focus is shifting from adding incremental new assortment to enhancing e-commerce discovery and the mobile experience. areas that directly improve customer engagement, conversion, and retention. Our leadership in environmental and human health remains our fourth pillar and a defining part of Grove's identity. During the quarter, we advanced our leadership by becoming one of the first companies to measure and disclose our AI-related carbon footprint through an expanded partnership with Gravity Climate. We believe innovation and sustainability must advance hand-in-hand and that transparency is essential for meaningful industry progress. Alongside our focus on execution, we continue to evaluate strategic options. Our plan and our priority remain building a durable, profitable standalone company. In parallel, as stewards of shareholder value, we are assessing opportunities that could accelerate our path to scale, strengthen our competitive position, or unlock additional value for investors. These may include additional acquisitions or partnerships, divestitures, and other strategic options consistent with our mission and long-term vision. We are working with advisors to assess these opportunities. Any action we take will be guided by the same principles that shape how we operate the business every day, sustainable shareholder value creation, capital efficiency, and customer focus. Today's consumer faces a fragmented marketplace with limited transparency, and our mission is to make that journey easier, to set a higher standard for safety and sustainability, stand behind it, and help families shop with confidence. We believe growth sits at the intersection of two powerful tailwinds, the growing shift toward cleaner, healthier products, and the increasing consumer demand for transparency and trust. Our contribution profit per box remains differentiated in the CPG space. Our NPS scores continue to reflect deep customer loyalty, and our team is aligned and energized by the opportunity ahead. 2025 has been a year of meaningful transformation. The path forward is clear. Optimize our technology and customer experience. protect liquidity and profitability while we do the work, and then scale responsibly and profitably. That's the plan in front of us. We are committed to executing it with urgency, discipline, and confidence. Before turning it over to Tom, I am pleased to share that the board and I have formally appointed him as Grove's permanent CFO, effective at the beginning of October. Tom has been an exceptional partner and thought leader throughout this transformation, bringing financial discipline, operational rigor, and a deep understanding of our strategy and culture. I'm grateful for his partnership and excited to continue this next phase together. Tom, over to you.

Thank you, Jeff, and welcome, everyone. Before I get into the numbers, I want to share how excited I am to formally step into the CFO role. Over the past several months, I've had a front row seat to the transformation underway at Groves. I'm encouraged by our path forward and the discipline with which we are executing it. My focus as CFO will be to keep us relentlessly disciplined on cash and support profitable growth into the future. Now turning to the financial results. Starting at the top line, revenue for the third quarter was $43.7 million, down 0.7% sequentially and 9.4% year over year. This marks our smallest year over year decline since the fourth quarter of 2021. The decline versus last year primarily reflects the effects of reduced advertising investment in prior periods, which led to a smaller active customer base entering 2025, as well as the friction from our e-commerce migration that began earlier this year. Sequentially, fewer orders were partially offset by higher net revenue per order. Total orders for the quarter were 619,000, a decline of 12.5% year-over-year, while active customers ended the quarter at 660,000, down 7% versus the prior year. These declines are consistent with what we've discussed previously. Lower advertising investment in 2024 and prior years has resulted in fewer new customers and therefore fewer repeat orders due to the recurring nature of our business, along with headwinds related to the e-commerce migration. BTC net revenue per order was $66.76, nearly flat year over year, but increased 2.4% sequentially. The sequential improvement was driven by an increase in units per order and lower discounting activity. Our gross margin was 53.3% of 30 basis points compared to 53% in the third quarter last year. The improvement reflects more targeted and improved promotional strategies resulting in lower discounts, partially offset by a more favorable product mix. Turning to advertising, we invested 3.2 million in the quarter. an 11.8% increase year over year. Spend was higher in the first half of the quarter, but we made the strategic decision to reduce spend in the back half as we shifted our strategy to preserve liquidity and drive profitability. We plan to scale spend more meaningfully once the core customer experience has been optimized. Product development expense was 1.6 million, down 66.1% year over year. This decline reflects our decision to streamline our technology organization as well as lower amortization costs following the e-commerce platform migration. S&A expense was $21.3 million, a 14% decrease versus the prior year. The reduction was driven by lower stock-based compensation, lower fulfillment costs from pure orders, and broader cost optimization across the organization. As Jack mentioned earlier, we executed a headcount reduction earlier this month that aligns our cost base with current scale. while preserving the talent and capabilities needed to complete the transformation. These actions are difficult but necessary, and they reinforce our commitment to operating with financial discipline. Adjusted EBITDA was negative 1.2 million, or a negative 2.7% margin, compared to breakeven in the third quarter of 2024. The year-over-year decline reflects lower revenue partially offset by cost structure improvements. Net loss was negative 3 million, compared to negative 1.3 million in the prior year. The variance primarily reflects the absence of a non-cash derivative gain of $7.8 million recorded in Q3 2024, partially offset by lower interest and operating expenses. Turning to the balance sheet and liquidity. We ended the quarter with $12.3 million in cash, cash equivalents, and restricted cash, down from $14 million at the end of the second quarter, primarily reflecting the quarterly net loss net of non-cash adjustments. Turning to our outlook. For the 12-month period ending December 31, 2025, we expect full-year revenue to be $172.5 million to $175 million, at the lower end of our previously communicated guidance range of down approximately mid-single-digit to low double-digit percentage points year-over-year. For the fourth quarter, we anticipate revenue to remain roughly flat sequentially. For full-year adjusted EBITDA, we continue to expect results within our within our guidance range of negative low single-digit millions to break even. Importantly, we expect fourth quarter adjusted EBITDA to be positive, benefiting from our pullback in advertising spend and the structural SG&A reductions executed earlier in November. To summarize, we are tracking toward the low end of our revenue guidance range, and we no longer anticipate year-over-year growth in the fourth quarter. The revision to our outlook is consistent with the choices we made to prioritize fixing the core experience, protecting liquidity, and ensuring that when growth returns, it is from a more durable foundation. In spite of lower revenue, we are maintaining adjusted EBITDA guidance as cost actions and discipline operating execution flow through to the bottom line. In closing, our priorities for the remainder of the year are clear. Protect liquidity and maintain financial discipline as we optimize the customer experience. We are prioritizing cash flow and profitability over short-term revenue growth to maintain balance sheet stability through the transition. These actions are laying the foundation for a healthier, more efficient business as we enter 2026. With that, I'll turn the call back over to Jeff for closing remarks.