Q2 2022 Grove Collaborative Holdings, Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the grow collaborative.
At <unk> 22 earnings call.
Lines have been placed on a listen only mode and the floor will be opened for questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a lot operator.
This time it is my pleasure to turn the floor over to your host Alexis Tessier ma'am the floor is yours.
Hello, and thank you all for joining US today with me on today's call are <unk> co founder and CEO Stuart Landesberg and CFS third he asked about this before.
Before we get started I'll quickly cover the forward looking safe Harbor some of the statements that we make today are about the future prospects financial results business strategies industry trends and our ability to successfully respond to business risks may be considered forward looking stuff.
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.
Described in our SEC filings, the underlying facts and assumptions for these statements can change as the world and our business changes for.
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 Dot group Dot com.
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 and good afternoon, everyone I'm excited to speak to you today after our June listening on our first earnings call as a public company.
We will share details on our performance in the second quarter, how our results fit within our shareholder value creation plan and why we believe growth is positioned for success as we lead the household products industry to transformational change.
For those of you newer to the growth story, let me first provide background on our company and the mission that got US started at growth. Our vision is that consumer products can be a positive force for human and environmental health, we operate in a massive industry with almost a one trillion dollar global Tam for home and personal care products.
And the $80 billion Tam in the U S alone.
Essentially all of that commerce is wrapped in single use plastics.
Simply put the current plastic and carbon footprint of our industry is not sustainable.
In 20 years products in our industry will look different.
Change is inevitable and Grove is leading that transformation.
The home and personal care industries, historically have a mixed track record for their impact on human health and the terrible track record.
So their impact on environment.
One problem, though in particular is the tip of the sphere.
But for our industry and for growth plastic the overwhelming majority of consumers, 84% in the U S are concerned about plastic waste.
Grove has focused on being the market leader in solving that problem.
The opportunity of growth is to transition the products that we all use each day.
So dish soap laundry detergent bath tissue shampoo face wash supposed to be good for us and for the planet.
We are building this company.
To serve the families of tomorrow as consumer led action on climate change and more specifically on plastic is only accelerating.
It has been a journey to get here I started this business in 2012 initially as a direct to consumer company offering a curated portfolio of products from the best third party natural and sustainable brands at home and personal care.
Overtime Grove has built a loyal and engaged user base, we have over one 5 million active customers today on our DTC platform.
We leveraged the uniquely rich dataset and our consumer relationships, along with clear conviction about a more sustainable future.
To create our own truly disruptive set of brands.
We spent the last decade gradually but significantly building authentic brands and home and personal care and notably our flagship growth Cobra.
His number one and zero waste homecare.
It really leaves that category and awareness and presence efficacy and sustainability.
The products, we launched under growth go as well as other incubator brands, such as pizza plastic Super Bloom and good for our not only better for consumer health and the health of the environment, but they're highly efficacious.
It's worth pausing for a second on efficacy, perhaps the least glamorous of our design pillars, but essential for long term customer loyalty.
If a product doesn't perform as well or better than current market leader's gross co will not launch it.
Gross products work as well or better than.
The products consumers are used to today.
This along with our strong brand drives exceptional customer loyalty.
We've always thought.
But also build a big tent around sustainability.
That means we need to target the middle of the bell curve consumer and deliver products that are a good value in addition to being truly innovative and efficacious.
That intense focus on efficacy sustainability and consumer Centricity has allowed us to establish a market leading position.
As I mentioned in the two trends that we think are most important in zero plastic and sustainable homecare.
I firmly believe.
That our innovation roadmap.
For the coming years is far ahead of the rest of the industry.
GTT routes not only allow us to make more informed product development decisions.
Get to market faster and iterate more quickly than traditional peers.
In terms of innovation, we just launched our fall seasonal collection nature less.
Super excited we have two limited edition scents inspired by false traditions mold Apple spiced pumpkin I encourage you to check them out while you can.
Both are available on our site.
Well its target and target Dot com my personal favorite is mold Apple, but I certainly respect that space Pumpkin has a big following.
While our business was built on DTC industrywide less than 10% of purchases of home and personal care products are done through direct to consumer over 90%.
Our purchases in our category, our major traditional diversified retail.
With this in mind in 2020, one we expanded distribution beyond our own DTC platform into brick and mortar retail for the first time through a partnership with target we.
We did this to elevate our brand.
Drive exposure increase awareness and meet consumers where they are.
We are extremely pleased with our partnership with target.
They've been true partners, providing visibility and helping to educate consumers on how our products solve an environmental problem without compromising on actually.
Our success at target has been an excellent proof point of our strategy, helping build momentum in our retail distribution rollout, which I'll discuss in a minute.
But before moving on to performance in the quarter I'd like to point out that growth as both the certified B Corp, and public benefit Corporation, which enables us to balance the interests of all stakeholders and the environment.
This is so much more than just an insignia on a page for us. It is intertwined with the DNA of the company and how we think about changing the world.
And how do we think about building a durable long term competitive advantage relative to our peers.
We believe that an authentic commitment to our mission critical in attracting and retaining the best talent in the world securing the best partnerships with Influencers celebrities and other grants.
And building deep connections.
Can last for years with our consumers.
I'm extremely grateful to all of the growth team members for their hard work and dedication over the last decade, and I'm a firm believer in.
And the fact that great people are.
Are what create great and differentiated companies over time.
Now moving onto our performance in the second quarter.
Our results represent the beginnings of our effort to eliminate unprofitable revenue and drive improved margins on a sequential basis in order to be profitable in 2024 in line with our shareholder value creation.
In total for the second quarter revenue was $79 3 million down 20% year over year, and 12% compared with <unk> 20 to adjust.
Adjusted EBITDA was a loss of $21 1 million essentially in line with last year's loss of 21.0 million, but a significant a notable improvement from the $39 7 billion loss in the first quarter of 2022.
These results trended better than our internal expectations based on our performance through the first six months and our outlook for the remainder of the year. We are pleased to raise our full year guidance for both revenue and adjusted EBITDA margin. Despite the macro environment Sergio will walk through the specifics of guidance in a moment.
While the year over year comparisons certainly reflect the fact that we are giving back some of the pandemic benefit we believe that sequential comparisons better represent the trends in the business as well as the decisive steps we have taken to position ourselves for long term success, including our strategic decision to pull back on our least profitable advertising spend of note. We are pleased that gross margin.
Increase in the quarter and we continue to drive profit progress there.
In the quarter, 60% of growth brands net revenue came from either zero plastic reusable, our refillable products all of which meet the companys beyond plastic standard. This is up significantly from 47% in the second quarter of 2021.
We also improved on a metric we call plastic intensity pounds of plastic per $100 in revenue.
We believe that we are the first in the industry to report on this metric statewide plastic intensity improved to 1.07 towns of plastic for $100 and revenue from 1.34 in <unk> 'twenty one.
Ross all growth brands plastic intensity improve to 0.87 pounds of plastic per $100 and revenue from 1.18 into 'twenty one.
We hope that by disclosing this metric we can encourage others to do the same shining a spotlight on the issue of plastic waste and driving the industry to meaningful change.
We have put in place a clear and actionable shareholder value creation plan to drive sustainable growth expanded profit and strong shareholder returns over the coming years, our value creation plan consists of four elements, one improved marketing efficiency to Omnichannel extension three net revenue management.
And for Opex discipline, I'll touch on each starting with marketing.
Like many businesses similar to ours, we grew up on paid social.
And like many others, we've seen material and persistent cost inflation in Michigan.
We have successfully diversified our advertising spend so the paid social is now only approximately 20% of our mix.
We've done that by expanding to a full funnel approach to marketing that leverages, our omnichannel presence and are further developing tools to drive unpaid traffic.
Yes, we have made a significant progress on upgrading our marketing staff, which has historically been fairly unsophisticated for the scale of our digital business. This year, we will finish the marketing technology implementation, which will materially improve our ability to segment and target on an individual basis.
We expect this upgrade to begin having an impact on customer engagement in the third and fourth quarters and even more so next year.
In addition, we continue to work hard to make it easier for customers to try and to repurchase from growth.
We're doing so by lowering the barriers and improving the customer experience on our direct to consumer platform.
This includes creating more non subscription ways to shop growth.
Which we believe are lower cat increased order conversion and drive higher attention.
Lastly, and perhaps most importantly, we're continuing to focus on building our awareness, we launched an exceptional partnership with drew Barrymore, and Bae who joined growth both as an investor and as a sustainability and brand advocates.
Together, we launched Grubbs first multichannel brand campaign, which segment, which focuses on the bucking. The myth that recycling is the solution to the plastic crisis since.
Since announcing the partnership today, we have secured media coverage and social posts, garnering hundreds of millions of impressions and engagements to date.
Switching now to number two omnichannel expansion as I mentioned earlier, we are only a little over a year into our strategy of driving omni channel expansion and a result of target are helping us build momentum industry. We were the number one launch and hand dish and cleaners in 2021.
According to Nielsen data, we also achieved top 10 brand status target in hand, and dish, including all conventional and national brands within our first year.
Last month, we announced that we more than doubled our product assortment in target stores and on target dot com with their shelf reset in April .
We did this to include a broader selection of sense room straight concentrates laundry detergent sheets and reusable dishwasher.
And incredible endorsement.
All of our products and our brand's ability to bring in new customers in fact, 30% of growth co shoppers that target, we're new to the category.
Shown by numerator data.
In addition, we added more than 700 doors in the second quarter across three new retailers Kohl's giant Eagle and minor as previously announced while it's still too early to comment on performance all of the stores had a end caps and beautiful merchandising.
We continue to have discussions with additional retail partners and expect to grow our points of distribution in 2022 by just over 300% year over year with opportunity for upside.
There was a 250000 door addressable market in the U S and we have about 400, skus, we can take to retail distribution.
This opportunity is enormous.
In addition to physical retail Grove is making strong but early progress on Amazon, where a flywheel is beginning to accelerate off a small base teach not plastic or zero plastic bar format personal care brand is seeing strength on Amazon with consumers loving the brand shampoo conditioner and body wash, while still quite small we've doubled the business in the last six months and our.
To continue to expand our offering and learnings at Amazon.
Omnichannel growth is significantly more capital efficient than DTC growth and we believe the balance of the two will allow us to drive durable top line growth with material bottom line extension.
The third element of our value creation plan is systemic net revenue management processes, which are embedded in all functions across all categories, we see material upside to capture here from initiatives, including strategic pricing maximizing the category mix and enhancing promotional sell through.
Many of these initiatives are already underway and we look forward to updating you on our progress on future earnings calls.
Lastly, we are working to right size, our operating expenses to achieve sustainable and profitable growth.
On top of the 17% reduction in force implemented at the end of the first quarter, we see opportunities to operate more efficiently across the board, while reallocating resources to the highest ROI initiatives, we have a full vendor audit underway and are evaluating ways to reduce fixed expenses like real estate and have significantly reduced hiring plans for the balance of 2022.
In 2023.
While we are proud of the progress we are making we have so much more to do and we will continue to focus on executing against our shareholder value creation plan, while advancing our goal of becoming a 100% plastic free by 2025.
We have a clear vision of the Grove that emerges on the other side, though having successfully executed against this value creation plan.
It is a disruptive high margin brand in a massive tam with market leadership and differentiation around long term sustainability for trips, we will still have enormous white space for omni channel distribution expansion that will allow us to grow with multiple times the industry average and we will continue to have strong gross margins.
Helping to drive EBITDA profitability inside the forecast periods.
Our value creation plan puts the elements of this success in our own hands to the fullest extent possible.
We are hungry.
To continue our execution here every day.
Overall, the success of our mission and shareholder value creation at Grove are highly aligned.
We are confident and we are driven to continue to drive progress on both fronts.
Before I turn the call over to Sergio to take you through our financial results and outlook in more detail I want to end by saying how excited I am to have him on the team.
Joe joined in April our CFO brings significant financial executive experience in global consumer products, including 18 years with Unilever and four of July .
Udall leader he was most recently the CFO of myriad for six years, where he successfully implemented operational and financial efficiencies that drove both sales growth and.
And profit impact.
He is a huge asset to grow and it's already making an impact taken away Serge yeah.
Thank you Sue.
Can't believe that Eaton has only been four months if I enjoyed the call. These rig company on its critically important mission what stands out for me is that I am surrounded by a truly incredible people that share a common goal of creating solutions to the problems for our inhaled <unk>.
Our planet caused by plastic consumption globally.
Before I get into our results for the second quarter I want to take a moment to lay out some of the key drivers of the business.
In the coming years, we expect to drive revenue by growing our Omnichannel presence.
Historically, we have grown revenue from Guangdong <unk> 5 million in 2018.
Over 300 million expected busier predominantly by driving orders on our DPC platform.
From both new customers and existing customers as well as through higher average for their body.
New customers orders are primarily a function of how much we are spending on advertising.
While customer retention is key for driving existing customer orders.
Iraq further value that's right isn't it.
As we have expanded our product offering and we have seen a mix shift into higher value categories over time.
From home care personal care beauty.
I will continue to push.
Into omni channel distribution and brick and mortar retail becomes a larger part of our business. We expect the retail metrics such as door count points of distribution and velocity is to name a few to become a more prominent part of our business performance metrics.
On the gross margin Bronx, we have driven material expansion.
From 35% is 20, 18% to 49% last year by increasing our assortment of branded products, which carry a higher gross margin third party products.
As well as by the shifting to higher margin categories I just mentioned.
Gross margin is also impacted by the discount rate, which is higher from new customers and for existing customers as you would imagine.
Hopefully that gives you a sense of how we think about drivers of that resource.
And now onto the results.
Second quarter net revenue was $79 3 million down 20% year over year and 12% from the first quarter of 'twenty to 'twenty two.
Comparisons are negatively impacted by the strategic reduction in advertising spend to acquire new customers as the company focuses on profitability.
In addition, the year over year decline was negatively impacted by consumer returning to pre pandemic shopping partners.
Given early thought on orders and active customers were also impacted by lapping elevated pandemic shopping network categories last year, coupled with a strategic reduction in advertising spend.
Total orders were down 22% year over year, and 16% quarter over quarter, the $1 3 million.
And active customers were down 10% year over year, and 5% quarter over quarter to $1 $56 million on a trailing 12 months basis.
Stu discussed earlier, we have taken steps to reduce inefficient advertisement span and refocus on brokerage level growth.
We expect to continue to see the plan to net revenue driven.
Driven by decreases in total orders and active customers.
So the year before stabilizing in 2023 and return to growth in 'twenty to 'twenty four.
On the flip side, we saw continued positive trends in BPC net revenue per order, which was up 3% year over year, 6% quarter over quarter to $58 three <unk>.
Driven by continued strength in existing customer average order value and increased VIP membership revenue per order.
Gross margin was down 40 basis points year over year, and not 190 basis points quarter over quarter to 49, 1%.
The year over year decline was driven by increased discounts due to a less favorable environment of the pandemic subsides.
And increasingly inbound freight costs, partially offset by strong third party product margins on seasonal skew performance.
The sequential improvement in gross margin rate reflected lower discounts in line with seasonal quarter in cell therapy.
Growth brands as a percentage of net revenue continued its long term trend, increasing 30 basis points year over year to 48, 2%, but was down three basis points quarter over quarter or normal seasonality.
Advertising expenses fell 21% year over year, and 45% quarter over quarter to $17 9 million, reflecting our decision to reduce advertising spend and focus on improving improving marketing efficiency as we strive to balance spending to support the <unk>.
Increasing brand awareness optimizing customer acquisition and retention.
Driving revenues.
Our EBITDA objectives long term.
Part of the sequential decline also reflects normal seasonality of the visa January tends to be the largest spend market.
<unk> expenses.
So 23% year over year, and 14% quarter over quarter to $57 9 million.
The year over year increase was predominantly driven by a $14 6 million increase in stock based compensation.
<unk> expenses for the company's restricted stock units on certain stock options as a result of meeting the performance based and condition. When the company went public partially offset by a decrease in fulfillment costs on lower order volume.
Excluding SBC.
G&A expense in the quarter would have been $39 8 million or 8% less than the same period last year, 15% less than the first quarter of 2022.
The quarter over quarter decline was predominantly driven by the reduction in force in March and a decrease in other marketing expenses.
Upset by costs associated with being a public company and other professional fees.
As a percentage of net revenue as G&A expenses would have been 50% compared to 44% in the first quarter last year at 52% in the first quarter 'twenty to 'twenty two.
Our adjusted EBITDA loss was $21 1 million essentially in line with the 21 million loss in the second quarter of last year and significantly smaller at about $39 7 million loss in the first quarter of 2022, despite lower sales.
Our adjusted EBITDA margin improved by.
1730 basis points quarter over quarter to minus 26, 6%, but fell by 540 basis points year over year, primarily due to increased is DNA as a percentage of net revenue.
Higher outbound shipping costs from price increases surcharges and the slightly lower gross margin rate.
The improvement compared to the first quarter of 2022 was driven primarily by the reduction in advertising.
Net loss in the quarter was $35 3 million compared to a loss of $28 5 million in the second quarter of last year and a loss of $47 4 million in the first quarter of 2020.
Turning now to the balance sheet.
We finished the quarter with our inventory balance of $53 5 million, which was down 1 million from the year end balance in 2021 and down $2 7 million from the end of June 2021.
Even three continues to be an area of focus with a goal of managing it down by the end of the year.
We ended the quarter with 132 million in cash and equivalents with an additional 12 million capacity available under our debt facilities.
This cash number reflects the capital raised in conjunction with our view of this combination.
On June 16, 2022, we completed our business combination with Virgin Group acquisition Corp.
<unk> two.
The transaction included a.
$86 million, but the investments from an affiliate of the sponsor did you do.
And new and existing global business.
In addition, we previously announced a 50 million backstop agreement with BG do Corvina Holdings is duty an affiliate of one sort of Beachy too.
Pursuant to which Corbina purchased 27 5 million of common stock from <unk>, which closed on March 31.
2022, and purchased $16 7 million of common stock of the combined company, which closed concurrently with a business combination.
Subsequent to the end of the quarter on July 18, 2022, we entered into a standby equity purchase agreement with an affiliate of George Advisors Global LP, allowing us to sell up to 100 million of shares of class a common stock up gross request during the 36 months.
Following the execution of the purchase agreement subject to certain conditions.
We will continue to evaluate opportunities to raise additional capital.
Now turning to <unk>.
Our outlook.
Factoring in our performance to date, our expectations for the back half of the year.
And the macro environment, we are raising our full year guidance as Stu mentioned.
We believe that the performance of the DTC business will solidify in the second half of the year on the back of more efficient advertising spend and higher average order value for existing customers. Additionally, our guidance reflects the presentation of our value creation plan, which will result in significant improvement in your profitability in the back half.
The year as compared to the first half.
For the 12 month period, ending December 31, 2022, we expect net revenue of $3 two five to 312 5 million.
Up from 300 to 310 million previously.
Adjusted EBITDA margin of minus 27, 5% to 35%.
From minus 29% to 32%.
In summary, we're excited to reach this new chapter as a public company as we advance on our incredible journey to realize youre plastic by 2025, while achieving our financial goals for the benefit of our environment. Our planet partners on all of our stakeholders I am pleased with the progress we're making on the value creation plan.
How do we maximize the power of our DTC platform accelerates, our retail expansion and further improvement marketing about operating expense efficiencies.
Drive growth and achieve profitability in a timely manner.
We look forward to reporting improving results in the quarters and years ahead.
Operator, we are now ready for questions.
Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time.
Our first question comes from Dana Telsey. Please state your question.
Hi, good afternoon, everyone.
Think about the past.
And the expense reductions that are underway, where are you in the cadence of that.
And when you think about the buckets for example, the NFL inefficient spend.
Is there the most opportunity and then on the revenue side.
Standard retail that you've entered into.
And being able to fulfill orders and what do you see is the ultimate goal of retail contribution to sales and marketing. Thank you.
Yeah.
Thank you Dana.
Thank you for the question so basically.
See the path to profitability going forward. Our plan is in the plan that we have shared with the with the markets.
We feel strongly that we have the capabilities capacity and the right mindset and structured to achieve it.
So what we are basically gave them seem this is for reductions in the second castle 2022 to start kicking in.
Further to what we kept on US as previously mentioned during the call.
So basically these will kick off in 2022 and accelerate in the second half.
With our site view of having these basically that run rate that we want to achieve at some point during 2023.
That's basically the answering the question where do we see the most benefit coming out of all the most efficiencies coming out of.
It's a combination of all the P&L as we have been explaining but basically if you were to think.
In order of priority piece I think opex.
Media investment and gross margin performance in that order.
Sequence I would put it or ranking if you will and that's what we're driving for.
To answer the second part of the question.
Yeah. Thanks, Dan It's a I appreciate the question.
I think Sergio said, it well that it really is a full P&L approach.
And I think in terms of the area, where we've got sort of the most to go or will drive the biggest impact on a relative basis, it's hard to pin down a little bit because so many are driving double digit million dollar changes year over year.
But probably the one that I would I would point to most is continuing to drive stronger and stronger profitability from our core customer base, we see that in lowering the cost to serve in driving higher average baskets and higher gross margins, which we're hopeful we can continue to drive for the balance.
As of year end through 'twenty three.
Success, there of course will drive really strong bottom line, especially as we seek to operate the business more efficiently.
Thank you.
Again, ladies and gentlemen, if you have a question. Please press star one on your telephone keypad at this time.
Okay. There are no further questions I'll turn it back.
To Stewart for closing remarks.
Thank you thanks, everyone for joining I was trying to say how grateful I am to have the opportunity to share the growth story now as a public company and how much conviction I have in our team's ability to continue to lead the way with innovation towards the future that where we drive not just a material change for the environment, but also material.
Terms for our shareholders over the many many quarters and years ahead. Thank you much look forward to reporting back on future quarters, as we continue to make progress.
Thank you. This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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