Q4 2023 Grove Collaborative Holdings Inc Earnings Call
Operator: and Michael Maier. Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings Inc.'s fourth quarter and full year 2023 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise.
Good afternoon, and thank you for standing by welcome to grow Collaborative Holdings, Inc. Fourth quarter and full year 2023 earnings conference call.
At this time all lines have been placed on mute to prevent any background noise.
Operator: Following the speaker's remarks, we will open your lines for your questions. As a reminder, this conference is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin, and CFO, Sergio Cervantes. Before they begin their prepared remarks, I will review the forward-looking statement, 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, including statements regarding the impact of transitioning order volume to other facilities, 2024 product launches, and category expansion, changes to our customer experience and their impact, including an increase in the addressable customer base, improved first order conversion, and a reintroduction to less active customers, our guidance for Such statements involve a number of risks and uncertainties that could cause actual results to differ materially.
Following the Speakers' remarks, we will open your lines for your questions.
A reminder, this conference is being recorded.
Hosting todays call are groves, CEO, Jeff <unk> and CFO, Mr. Joseph on test.
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 and industry trends and grubbs ability to successfully respond to business risks may be considered forward looking.
Including statements regarding the impact of transitioning order volume to other facilities.
24 product launches and category expansion changes to our customer experience and their impact, including an increase in addressable customer base improve.
Improved first order conversion and a reintroduction to less active customers our guidance for 'twenty 'twenty four net revenue and adjusted EBITA margin revenue growth in the second half of 'twenty 'twenty four wall being adjusted EBITDA profitable and our ability to invest in advertising as a higher percentage of revenue.
Such statements involve a number of risks and uncertainties that could cause actual results to differ materially.
Operator: All of these statements are based on Grove's view of their market 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 market and their business changes. For more information, please refer to the risk factors discussed in their most recent filings with the SEC, which are available on Grove's Investor Relations website at investors.groveco. 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 their earnings release, which is also available on their investor relations website. I would now like to turn the call over to Jeff Yurcisin.
All of these statements are based on gross view of their market and their business as AC today.
As described in their FCC filings, the underlying facts and assumptions for these statements can change as the market and their business changes.
For more information please refer to the risk factors discussed in their most recent filings with the S. E C, which are available on gross Investor relations website at investors stock growth Darko.
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 the Investor Relations website.
I would now like to turn the call over to Jeff Jacobsen to begin.
Jeff Yurcisin: Thank you, operator. Hello everyone, and thank you for joining the call today. I'm excited to be here with you and to share updates about our financial performance for the fourth quarter, as well as for the full year 2020. I recently passed my six-month milestone at Grove and continue to be impressed by our team's contributions, dedication to our mission, and our incremental results. I remain confident in the strategy that we put into place in November of 2023, and, more importantly, I am deeply excited about our future.
Thank you operator.
Hello, everyone and thank you for joining the call today.
I'm excited to be here with you and to share updates about our financial performance for fourth quarter as well as the full year 2023.
I recently passed my six month milestone that growth continue to be impressed by our team's contributions dedication to our mission and our incremental results.
Confidence in the strategy that we put into place in November of 2023, and more importantly, I'm deeply excited about our future.
Jeff Yurcisin: We seek to be the most trusted brand for conscientious customers who want to make the right choices for their families within the plan. To achieve that, we must deliver profitable growth. And I'm proud of our team's incredible progress over the past few months, as we continue to prioritize profitability while putting the customer at the center of all that we do. The creation of a leading sustainable brand is a catalyst for our future growth, which we'll accomplish by creating and curating the most efficacious and planet-first products, in particular. Q4 2023 with the start of a critical business transformation as we evolve our customer experience, create incentives for customers to build the most wallet- and planet-friendly box possible, and roll out a robust product pipeline prioritizing sustainability and convenience.
We seek to be the most trusted brand for conscientious customers, we want to make the right choices for their families and the plan.
To achieve that we must deliver profitable growth and I'm proud of our team's incredible progress over the past few months as we continue to prioritize profitability, while putting the customer at the center of all that we do.
The creation of a leading sustainable brand as a catalyst for our future growth, which will accomplish by creating and curating. The most efficacious and planet first products.
In particular Q.
Q4, 'twenty to 'twenty three with the start of a critical business transformation as we evolve our customer experience create incentives for customers to build the most wallet and planet friendly box possible.
Rollout, a robust product pipeline prioritizing sustainability and convenience.
Jeff Yurcisin: As we mark our 10th year as a B Corporation, I'm thrilled with the changes to date and those to come as we continue our laser focus on our three strategic pillars, customers, sustainability, and profitability. I intend to touch on profitability and sustainability first, but will dedicate most of my remarks to sharing how we will drive growth by focusing on improving the customer experience. Beginning with our profitability pillar, I'm incredibly proud of the Grove team and their dedication to deliver positive, adjusted EBITDA results for the second quarter in a row. Q4 2023 also marked a new record for net revenue per order at $66.83 and positive operating cash flow for the second consecutive quarter.
As we Mark our 10th year as a B Corp, I'm thrilled with the changes to date and those to come as we continue our laser focus on our three strategic pillars customer.
Sustainability and profitability.
I intend to touch on profitability and sustainability first but we'll try to keep most of my remarks to share how we will drive growth by focusing on improving the customer experience.
Beginning with our profitability pillar I'm incredibly proud of the growth team and their dedication to deliver positive adjusted EBITDA results for the second quarter in a row.
Q4, 2023 also marked a new record for net revenue per order at $66.83 and positive operating cash flow for the second out of the last three quarters. These serve as additional proof points of our focus on profitability.
Jeff Yurcisin: These serve as additional proof points of our focus on profitability. Our sustainability mission requires that we operate a sustainable business. We internalized this ethos as we continued our ongoing review of operating costs and took action to improve our margin and increase our operating leverage during the fourth quarter. We took additional action during the first quarter of 2024 to further reduce our operating expenses, specifically. We entered into an amendment for our San Francisco headquarters lease, subject to our landlord's lender approval. The amendment terminates our existing lease, provides for our lease of the first floor of the building at a lower cost, and requires us to pay $4.8 million in termination fees.
Our sustainability mission requires that we operate a sustainable business we've.
We've internalized this ethos as we continued our ongoing review of operating cost and took action to improve our margins and increase our operating leverage during the fourth quarter. We took additional actions during the first quarter of 2024 to further reduce our operating expenses specifically.
We entered into an amendment for our San Francisco headquarters lease subject to our landlords lender approval. We got amendment terminate our existing lease provides for our lease up the first floor of the building at a lower cost and requires us to pay a $4 8 million dollar termination fee the.
Jeff Yurcisin: The amendment will create approximately $5.8 million of cash savings through May 2027, the end of the original lease. We also evaluated our fulfillment center ecosystem and made the decision to close our Missouri location to optimize for cost and operational efficiency. We expect minimal transportation impact for our customers as we transition the order volume to our fully operational Nevada and Pennsylvania facilities. Our bi-coastal, two-node network still has sufficient capacity for revenue growth for the foreseeable future.
The amendment will create approximately $5.8 million of cash savings through May 2027, the end of the original lease term.
We also evaluated our fulfillment center ecosystem and made the decision to close our Missouri location to optimize for cost and operational efficiencies, we expect minimal transportation impact for our customers as we transition the order volumes were fully operational in Nevada, and Pennsylvania facilities.
Our bicoastal two node network still have sufficient capacity for revenue growth for the foreseeable future.
Jeff Yurcisin: These savings will be reflected in the P&L throughout the coming year. With respect to our sustainability pillar as our foundation, mission, and point of differentiation, we continue to focus on research and development to create and curate increasingly sustainable products, working with partners and vendors on scalable alternative materials that can help us to transform the consumer product. Q4 marked a significant milestone for the company when we announced that we have collected 15 million pounds of single-use plastic and ocean-bound plastic since 2020 through our partnership with Plastic Recovery Platform. This is the impact of our plastic neutrality commitment, through which, for every ounce of plastic shipped to Grove customers, we collect the equivalent amount of plastic pollution through our ongoing partnership with Repurpose Global.
These savings will be reflected in the P&L throughout the coming quarters.
With respect to our sustainability pillar is our foundation mission and points of differentiation. We continue to focus on research and development to create mercury increasingly sustainable products working with partners and vendors on scalable alternative materials that can help us to transform the consumer products industry.
Q4 marked a significant milestone for the company when we announced that we have collected 15 million pounds of single use nature and ocean bound plastic since 2020 through our partnership with plastic recovery platforms.
This is the impact of a classic neutrality commitment through which every ounce plastic shipped to growth customers. We collect the equivalent amount of plastic pollution through our ongoing partnership with repurpose global.
Jeff Yurcisin: We've also helped to avoid 10.8 million pounds of single-use plastic since 2017, including 1.7 million pounds in 2023 alone, by offering a broad assortment of products that contain less plastic compared to other households. We also launched our digital badge, on the Product that Meets Groves Beyond Plastic. Our customers can now look for three badges on our website, including 100% plastic free, 95 plus percent plastic free, and no single-use plastic, to help them make educated purchasing decisions and reduce their consumption of single-use plastics.
We've also helped to avoid 10.8 million pounds of single use plastics since 2017, including $1 7 million pounds in 2023 alone by offering a broad assortment of products that contain less plastic compared to other household brand.
We also launched our digital banking system on product that meet grows beyond plastic standards. Our customers can now looked for three batches on our web site, including 100 per cent plastic free.
95, plus percent plastic fruit and no single use plastic to help them make educated purchasing decisions and reduce their consumption of single use plastic.
Jeff Yurcisin: These digital badges expand our transparency efforts by sharing the plastic content of our Grove brand and third-party products while guiding customers to shop for reusable products or products containing little to no single-use plastic. We are providing more information to our customers on our website to make their sustainability journeys easier to navigate and enable progress over perfection on our. The cornerstone of our sustainability mission has been reducing the amount of single-use plastic sold in everyday consumer products. Our key measurement to understand progress is plastic intensity, which we define as pounds of plastic per $100 of our net revenue. We hope other brands and retailers will become equally inspired to measure and reduce plastic throughout their products. Plastic intensity across the entire Grove business was 1.07 pounds of plastic per $100 in net revenue in the fourth quarter of 2020, an improvement from 1.11 pounds in the third quarter of 2023 and 1.08 pounds in the fourth quarter of 2022.
These digital badges expand our transparency efforts by sharing the plastic content of our growth brand and third party products, while guiding customers to shop reusable products or products containing little to no single use plastic.
We are providing more information to our customers on our website to make their sustainability journey easier.
Easier to navigate and enabled progress over perfection on our mission.
The cornerstone of our sustainability mission has been reducing the amount of single use plastics sold everyday consumer products are key measurement to understand product progress, it's plastic intensity, which we define as pounds of plastic per $100 a barrel net revenue.
We hope other brands and retailers become equally inspired to measure and reduce plastic.
Plastic throughout their business.
Plastic intensity across the entire growth business was 1.07 pounds of plastic for $100 of net revenue in the fourth quarter of 2023, an improvement from 1.11 pounds in the third quarter of 2023, and 1.08 pounds in the fourth quarter of 2022 for growth brands only across online sales in <unk>.
Jeff Yurcisin: For Grove Brands Only, across online sales and retail partners. Plastic intensity was also 1.07 pounds of plastic per $100 in net revenue in the fourth quarter of 2023, an improvement from 1.14 pounds in the third quarter of 2023 but up from 0.98 pounds in the fourth quarter of 2023. Co. 100% Recycled Plastic Trash Bags were the primary driver of the year-over-year plastic intensity increase for our grove.
Tail partners.
Yeah.
Plastic intensity was also 1.07 pounds of plastic per $100 of net revenue in the fourth quarter of 2023, an improvement from 1.14 pounds in the third quarter of 2023 up from 0.98 times in the fourth quarter of 2022 outgrowth co a 100% recycled plastic trash bags, where the primary.
The year over year plastic intensity increase for our growth rate.
Finally.
With respect to the customer.
We want improve the VIP experience to continued momentum with growth cold product innovations three saw accelerated growth within health and wellness and for most importantly, we began the transformation of our new customer acquisition model.
Jeff Yurcisin: Finally, with respect to the customer pill, we, one, improve the VIP experience. 2, Continued Momentum with Growth Code Product Innovation. Three, saw accelerated growth within health and wellness. And four, most importantly, we began the transformation of our new customer acquisition. The fourth quarter saw improvements to our website and to our product recommendations as well as special pricing for our VIPs. We plan to continue making changes to our site while offering our best customers, our VIPs, exclusive benefits, and more value for their loyalty. For our Grove-branded products, our team is focused on leading the industry with 50-plus no-whey ingredients, like Paraben. Thalates, and Phosphates that are not included in any of our products.
The fourth quarter saw improvements to our website into our product recommendations as well as special pricing for our Vips, We plan to continue making changes to our site, while offering our best customers, our VIP exclusive pets and more value for their loyalty for our growth branded products. Our team is focused on leading the industry with 50 plus.
No way ingredients like Paragon.
Alex and phosphates that are not included in any of the products. We continue to innovate with products and with award winning packaging.
In Q4, we launched our growth Coke bottle wash power packs, a new pod product that removes stains and lingering odors and hard to clean containers, serving as an entry point into a niche category with an opportunity for growth.
We have a number of planned launches throughout 2024 that will enable customers an easier entry point into our product platforms with ready to use items at a more accessible price point on many of the shelves in the 7500 brick and mortar locations where growth co products are sold across the country.
Jeff Yurcisin: We continue to innovate in both product and with award-winning power. In Q4, we launched our GroveCo Bottle Wash Power Packs, a new pod product that removes stains and lingering odors in hard-to-clean containers, serving as an entry point into a niche category with an opportunity for growth. We have a number of planned launches throughout 2024 that will enable customers an easier entry point into our product platforms with ready-to-use items at a more accessible price point on many of the shelves in the 7,500 brick and mortar locations where GroveCode products are sold. For our third-party brand partners, we intend to offer relevant products that a conscientious customer would want. Customers continue to ask us to enter new categories. For instance, 89% of customers we So in the health and wellness category, we established a dedicated health and wellness advisory board composed of medical clinicians and practitioners to help guide the ongoing expansion of the brands and products we sell using the latest research and science.
For our third party brand partners, we intend to offer relevant products that conscientious customer would want.
Customers continue to ask us to enter new categories.
89% of customers, we surveyed in that study with trust Grove over other retailers to meet their health and wellness needs. So in the health and wellness category, we established a dedicated health and wellness Advisory Board composed of medical clinicians and practitioners to help guide the ongoing expansion of the brands and products, we sell using the law.
<unk> research and science.
Between Q4 2022 in Q4 2023, we grew the percentage of order, it's contained to health and wellness product by more than 75% showing continued momentum in the category going into 2024. This is valuable because the higher average retail prices and regimented nature of wellness products translates to a customer lifetime value that is.
<unk> three times higher for a customer that purchases wellness products versus one that just now.
We are continuously evaluating our pricing and category offering and health and wellness turning growth into the destination for our customers' wellness needs.
We are in the midst of transforming from a sustainable cleaning brand to a trusted household brands to meet more of our conscientious customers' needs in Q4, we welcomed the ancient nutrition Composted, the honest company and wished garden's brands to our collaborative as well as dozens of new products from existing third party brand partners we will.
Jeff Yurcisin: Between Q4 2022 and Q4 2023, we grew the percentage of orders containing a health and wellness product by more than 75%, showing continued momentum in the category going into 2020. This is valuable because the higher average retail prices and regimented nature of wellness products translates to a customer lifetime value that is approximately three times higher for a customer that purchases wellness products versus one that does not. We are continuously evaluating our pricing and category offering in health and wellness, turning Grove into the destination for our customers' wellness. We are in the midst of transforming from a sustainable cleaning brand to a trusted household brand to meet more of our conscientious customers. In Q4, we welcomed the Ancient Nutrition, Compostic, The Honest Company, and Wish Gardens brands to our collaborative, as well as dozens of new products from existing third-party brand partners.
To expand assortment within our core categories and into adjacent ones, where we have earned our customers' trust.
In Q4, we also began a journey to remake our customer experience to be more clear customer friendly and focused on our priorities of sustainability and value, while also providing more transparency around our subscription process.
The transition we have seen and will see lower first order conversion rates as a result, we spent advertising at a stable percentage of revenue in the fourth quarter when compared to the second and third quarters.
At the end of February we launched an updated customer experience for new customers. We adopted an improved approach for the first order experience.
Moving gated access and support subscriptions and creating incentives for customers to opt into a program to subscribe to individual products for increased savings. We will also offer discounts for repeat orders and free gifts to incentivize basket building. The transformation represents a significant shift in our subscription model. These changes will allow.
Jeff Yurcisin: We will continue to expand our assortment within our core categories and into adjacent ones where we have earned our customers' trust. In Q4, we also began a journey to remake our customer experience to be more clear, customer-friendly, and focused on our priorities of sustainability and value, while also providing more transparency around our subscription process. During the transition, we have seen, and will see, lower first order conversion rates.
To better match best practices across e-commerce that I've seen throughout my career and drive growth and new acquisition channels.
We are optimistic that the various changes to the overall experience with reduced friction and even more transparency will increase our total addressable market improved first order conversion and reintroduce less active customers to the grub platform I'm energized by this transformation, which is the natural output of listening to customers.
Putting them in the center of all that we do.
During this transition we further reduced advertising spend in the first quarter, but we intend to increase our spend as a percentage of revenue throughout the year as we optimize the experience.
Jeff Yurcisin: As a result, we spent advertising at a stable percentage of revenue in the fourth quarter when compared to the second and third. At the end of February, we launched an updated customer experience for new customers. We adopted an improved approach for the first-order experience by removing gated access and default subscriptions and creating incentives for customers to opt into a program to subscribe to individual products for increased savings. We will also offer discounts for repeat orders and free gifts to incentivize basket building.
Now turning to 2024, you will continue to see us prioritize profitability, but we also expect sequential revenue growth in the second half of the year. We plan to accomplish these results by one expanding product selection, we will follow our customers' needs by building on our demonstrated success.
And category expansion that health and wellness space too we are optimizing our growth model will move from the gated first order experience to one that is shopping focus and provides incentives for customers to subscribe to items and build the most planet friendly and wallet friendly order as possible. We expect this to reactivate and Reenergized.
Jeff Yurcisin: The transformation represents a significant shift in our subscription model. These changes will allow us to better match best practices across e-commerce that I have seen throughout my career and drive growth and new acquisitions. We are optimistic that the various changes to the overall experience, with reduced friction and even more transparency, will increase our total addressable market, improve first order conversion, and reintroduce less active customers to the Grove platform. I'm energized by this transformation, which is the natural outcome of listening to customers and putting them at the center of all that we do.
Our 5 million customer or customer base and further increase our total addressable market and appeal to all conscientious customers three.
Three we're prioritizing innovation, we will continue to launch new sustainable products to our online platform and 7500 brick and mortar retail locations. For example, we are launching a new ready to use product assortment that will enable customers to experience growth Coe at a lower entry price point than our current durable concentrate offering.
Jeff Yurcisin: During this transition, we further reduced advertising spend in the first quarter, but we intend to increase our spend as a percentage of revenue throughout the year as we optimize the experience. Now turning to 2024, we will continue to see us prioritize profitability, but we also expect sequential revenue growth in the second half of the year. We plan to accomplish these results by expanding our product selection. We will follow our customers' needs by building on our demonstrated success and category expansion in health and wellness. Two, we are optimizing our growth model.
And lastly, we are doubling down on sustainability our point of differentiation. This is what connects our team. It's why customers Trust us and it's what sets US apart. We are the first plastic neutral retailer in the world, but we aim to do more by further serving our customers through education.
And new products guided by our beyond plastic standards I'm incredibly excited about the strategy that prioritizes, our customers and puts our sustainability mission at the forefront of everything we do.
Now I'll turn the call over to <unk> to review our financial results in more detail Shaquille. Please go ahead.
Thank you Jeff.
Similar to the previous calls we're going to provide quarter over quarter comparisons in addition to a year over year changes.
Jeff Yurcisin: We will move from the gated first order experience to one that is shopping focused and provides incentives for customers to subscribe to items and build the most planet-friendly and wallet-friendly orders possible. We expect this to reactivate and re-energize our 5 million customer base and further increase our total addressable market and appeal to all conscientious consumers.
We continue to believe that sequential comparisons reflect trends in their vehicles and provide a measure of the effectiveness of the steps we have taken to position ourselves for long term sustainable and profitable growth.
Starting with the top line.
Net revenue in the fourth quarter was $59 9 million down three 1% from the third quarter of 2023 on 19, 2% in the year on year.
The ongoing impact of our work with yourself, our typing strategy precisely, which optimizing spend to ensure adequate return on investment.
Jeff Yurcisin: Prioritizing innovation, we will continue to launch new sustainable products on our online platform and at our 7,500 brick-and-mortar retail locations. For example, we are launching a new ready-to-use product assortment that will enable customers to experience Grove Co. at a lower entry price point than our current durable concentrate offer.
As we transition our first sort of experience and aggressively push for ITW.
For the fourth quarter total orders were down five 8% quarter over quarter, and 23, 7% year over year to zero point.
Million inactive customers, what about nine 7% quarter over quarter at 33, 2% year over year to 0.9 million.
Both total orders connected customers continued to be impacted by lower advertising spend.
Jeff Yurcisin: And lastly, we are doubling down on sustainability, our point of differentiation. This is what connects us, it's why customers trust us, and it's what sets us apart. We are the first plastic-neutral retailer in the world, but we aim to do more by further serving our customers through education and new products guided by our Beyond Plastics program. I'm incredibly excited about the strategy that prioritizes our customers and puts our sustainability mission at the forefront of everything we do. I will now turn the call over to Sergio to review our financial results in more detail. Sergio, please go ahead.
Offsetting the decrease in total orders DTC net revenue per order was up two 4% quarter over quarter on a five 4% year over year to $66 83.
Another record high surpassing our previous record of 65 point 24 from last quarter.
The sequential and year over year improvement.
Driven by a mix shift to existing customer orders as well as the increasing the number of units per existing customer order, we expanded our product offering and optimize that with pricing.
Gross margin was up 60 basis points quarter over quarter on several fronts around 40 basis points year over year to 54, 4%.
Sergio Cervantes: Thank you, Jeff. Similar to previous calls, we will provide quarter-over-quarter comparisons in addition to year-over-year changes. We continue to believe that sequential comparisons reflect trends in the business and provide a measure of the effectiveness of the steps we have taken to position ourselves for long-term sustainable and profitable growth. Starting with the top line, net revenue in the fourth quarter was $59.9 million, down 3.1% from the third quarter of 2023 and 19.2% year-over-year. The ongoing impact of our reduced advertising strategy persisted, which optimized its spend to ensure adequate return on investment, as we transition our first-order experience and aggressively push for ProfitaVita. For the fourth quarter, total orders were down 5.8% quarter over quarter and 23.7% year over year to $0.9 million. And active customers were down 9.7% quarter over quarter and 33.2% year over year to $0.9 million. Both total orders and active customers continue to be impacted by lower advertising spend.
In the fourth quarter inventory reserve reduction contributed 230 basis points of gross margin compared to 20 basis points in Q3, 2023, and a negative foreign content 70 basis points in Q4 2022.
The year over year improvement was further driven by a decrease in supply chain costs and a mix shift.
Do you think customers will.
When compared to Q3 2023 the.
The inventory reserve reduction was upset by higher product costs due to a seasonally sky tired piece downgrades and a higher percentage of third party costs.
Oh from products as a percentage of net revenue was down 30 basis points quarter over quarter.
70 basis points year over year to 44, 5%.
The sequential and year over year decline largely due to a decrease in group on products in existing customer orders as we continue to expand our third party product offering, especially our product selection into health and wellness category relative to grow branded products.
Our other types of expenses decreased 4% quarter over quarter, and 43, 6% year over year to $3 9 million.
The year over year. These bonds reflects our food banks and other banks in Spain, I'm focused on accretion.
The sequential decline was due to a reduction in retailer specific advertising, we violence brought with him for Keith I really think the general I'm.
And also about the efficiency of our D. C. Other dicey, we began transforming the first sort of the customer experience.
Sergio Cervantes: Despite the decrease in total orders, DTC net revenue per order was up 2.4% quarter-over-quarter and 5.4% year-over-year to 66.83, another record high, surpassing our previous record of 65.24 from last quarter. The sequential year-over-year improvement was driven by a mixed shift to existing customer orders, as well as an increase in the number of units for existing customer orders as we expanded our product offering and optimized our price. Margin was up 60 basis points quarter over quarter and 740 basis points year over year to 54.4%. In the fourth quarter, the inventory reserve reduction contributed 130 basis points to gross margin compared to 20 basis points in Q3 2023 and a negative 470 basis points in Q4 2022. The year-over-year improvement was further driven by a decrease in supply chain costs and a mixed shift to existing courses. When compared to Q3 2023, the inventory reserve reduction was offset by higher product costs due to a seasonally higher discount rate and a higher percentage of third-party products.
Product development expense increased 27, 3% quarter over quarter, but decreased one 5% year over year to $4 6 million.
The Q4 2023 amount includes a 0.7 million a year do they think justification for Ibs D N a.
0.1 million of restructuring charges.
Excluding the reclassification of restructuring charges product development expenses was stable quarter over quarter and declined year over year.
<unk> expense increased seven 9% quarter over quarter, but decreased 38% year over year to $32 1 billion.
The current quarter includes $3 3 million.
Restructuring expenses.
Stock based compensation also increased 1.5 million when compared to Q3 due to a one time through up recorded in Q3.
If you exclude volatile piece item.
Q4, 'twenty to 'twenty three.
The work on the prior quarter, mainly due to lower fulfillment costs from fewer orders.
Similarly, the year over year decline is due to lower fulfillment costs from fewer for others, but also lower personnel and professional services costs as we rightsize the cost structure throughout the year.
Adjusted EBITDA for the fourth quarter was positive <unk>.
Sergio Cervantes: Group running products as a percentage of net revenue was down 30 basis points quarter over quarter and 70 basis points year over year to 44.5 percent. The sequential and year-over-year declines were largely due to a decrease in growth brand products in existing customer orders as we continue to expand our third-party product offerings, especially our product selection in the health and wellness category relative to growth brand products. Our advertising expenses decreased 4% quarter-over-quarter and 43.6% year-over-year to $3.9 billion.
One 1 million compared to positive 2 million in the third quarter of 2023.
$9 5 million loss in the fourth quarter of 2022.
Our adjusted EBITDA margin was 0.2 per cent compared to 0.3% in Q3 'twenty can agree on minus 12, 9% in Q4 'twenty to 'twenty two.
In the second quarter in a row, but we believe were supposed to be about just have you people.
We are pleased with these results.
Demonstrating our ability to manage our cost structure effectively despite the declining revenues.
Net loss in the quarter was $9 5 million compared to a net loss of $9 8 million in the third quarter of 2023 wells.
Sergio Cervantes: The year-over-year declines reflect our pullback in advertising spend and focus on efficiency. The sequential decline was due to a reduction in retail-specific advertising as we balanced growth and profitability in the channel and also balanced the efficiency of our DTC advertising as we began transforming the first-order customer experience. Product development expense increased 27.3% quarter over quarter but decreased 0.5% year over year to $4.6 million. The Q4 2023 amount includes a 0.7 million year-to-date reclassification from SDNA and 0.1 million of restructuring charges, excluding the reclassification and restructuring charges. Product development expense was stable quarter-over-quarter and declined year-over-year.
12.7 million loss in the fourth quarter it stood at 22.
Turning now to the balance sheet.
We ended the quarter with $94 9 million cash cash equivalents and with just the gas.
An increase of 0.2 million from the previous quarter.
The increase was mainly due to one 1 million of operating cash flow offset by 0.5 million of capital expenditures.
It relates to working capital, it's Ryan we finished the quarter with inventory finance 28 eight.
8 million down $3 9 million from the end of Q3 'twenty to 'twenty three.
As we continue to rightsize our inventory ownership.
We did not make any draws on the asset based loan facility in the fourth quarter after having taken the minimum draw seven 5 million in Q1 'twenty to 'twenty three.
Based on current inventory and accounts receivable balances, we've got eight 1 million of kept bucket.
Sergio Cervantes: SG&A expense increased 7.9% quarter-over-quarter or decreased 38% year-over-year to 32.1%. For the current quarter, SDNA includes $3.3 million of research and expenses. The stock price compensation also increased $1.5 million when compared to Q3, due to a one-time throw-up recorded in Q3. If you exclude both of these items... Q4 2023 SG&A is lower than the prior quarter, mainly due to lower fulfillment costs from fewer orders. Similarly, the year-over-year decline is due to lower fulfillment costs from fewer orders, but also lower personal and professional services costs as we right-size our cost structure throughout the year. Adjusted EBITDA for the fourth quarter was positive $0.1 million compared to positive $0.2 million in the third quarter of 2023 and $9.5 million lost in the fourth quarter of 2023.
Now turning to our outlook.
For the 12 month period, ending December 31st 2024, we expect.
Net revenue of 215 to 225 million.
And adjusted EBITDA margin of zero to 1%.
While our guidance revenue declining on an annual basis in 'twenty 'twenty four compared to 2023, we expect to deliver sequential quarterly revenue growth in the second scaffolds don't need 24, while also being profitable on an adjusted EBITDA basis for the full year.
We further expect the transformations of the costumer experience that Jeff described previously.
Allow us to invest in advertising at a higher percentage of revenue starting in the second half of the year when compared to the first half.
I look forward to providing updates on our progress in the coming quarters.
I would now like to turn the call back over to Jeff for some closing remarks.
Sergio Cervantes: Our adjusted EBITDA margin was 0.2% compared to 0.3% in Q3 2023 and minus 12.9% in Q4 2020. This is the second quarter in a row that we delivered a positive adjusted EBITDA margin. We are pleased with this result, demonstrating our ability to manage our cost structure effectively despite the declining credit. The net loss in the quarter was $9.5 million, compared to a net loss of $9.8 million in the third quarter of 2023 and $12.7 million loss in the fourth quarter of 2023.
Thank you Sergio.
Having completed my first six months in the role of CEO I have an immense amount of gratitude for our board of directors leadership team and drove employees for being part of this incredible journey and because of their guidance partnership and hard work, we've been able to accomplish an incredible amount in just six months that should make us all trials.
Yeah.
At growth, we aim to transform our industry and turn consumer products into a force for human and environmental good.
And when you consider that 89% of ocean plastic of single use plastic and only 5% of plastic is recycled our mission is more critical now than ever.
Sergio Cervantes: Turning now to the balance sheet, we ended the quarter with 94.9 million in cash, cash equivalents, and restricted cash, an increase of 0.2 million from the previous quarter. The increase is mainly due to $1.1 million of operating cash flow offset by $0.5 million of capital expenditures. As this relates to working capital trends, we finished the quarter with an inventory balance of $28.8 million, down $3.9 million from the end of Q3 2023, as we continue to right-size our inventory ownership. We did not make any draws on the asset-based loan facilities in the fourth quarter after having taken the minimum draw of $7.5 million in Q1 2023.
The path to achieve our mission and transform our business relies on our strategy to stay focused on our conscientious customers win with our sustainability differentiation and pursue our mission by running a sustainable profitable growing business.
And we're already seeing the results of our transformation underway.
Twenty-three prioritize profitability and saw a number of incredible milestones for our company. We have a plan in place that we believe will make us profitable and growing sequentially by the end of 2024.
I am excited about the results from this quarter I can say with certainty that this is just the beginning as we look to make a number of changes that will benefit our customers our shareholders and our planet.
Sergio Cervantes: Based on current inventory and accounts receivable balances, we have 8.1 million of capacity available. Now, turning to our audience. For the 12-month period ending December 31st, 2024, we expect... Net revenue of $215 to $225 million, and adjusted EBITDA margin of 0 to 1%. While our guidance has revenue declining on a natural basis in 2024 compared to 2023, we expect to deliver sequential quarterly revenue growth in the second half of 2024, while also being profitable on an adjusted EBITDA basis for the full year. We further expect the transformation to the customer experience that Jeff described previously to allow us to invest in advertising at a higher percentage of revenue starting in the second half of the year when compared to the first half. I look forward to providing updates on our progress in the coming quarters. I would now like to turn the call back over to Jeff for some closing remarks. Thank you, Sergio.
We are now happy to answer any questions you have.
Operator, please open the line for questions.
Thank you we will.
I'll now be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
And you May press Star two if he would like to move your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys one.
One moment please poll for questions.
Thank you. Our first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Hi, good evening nice job on the quarter, great to see that profitability continue to improve I was wondering so on the 'twenty 'twenty four topline guide maybe if you could just talk about I guess the cadence amongst the quarters. It sounds like you expect revenues to increase sequentially as we go throughout the year I guess.
Should we expect fourth quarter to be up year over year by the time, we get there or how are you guys thinking about that thanks.
Thank you Susan.
Look.
We said, we're gonna be profitable and growing in 2024, and we still believe that's true.
We are confident in our plan that we have in place and what you will see is quarter over quarter on an ongoing basis.
Jeff Yurcisin: Having completed my first six months in the role of CEO, I have an immense amount of gratitude for our board of directors, leadership team, and Grove employees for being part of this incredible journey. And because of their guidance, partnership, and hard work, we've been able to accomplish an incredible amount in just six months that should make us all proud. At Grove, we aim to transform our industry and turn consumer products into a force for human and environmental good. And when you consider that 89% of ocean plastic is single-use plastic, and only 5% of plastic is recycled.
Great.
In terms of year over year, we are not giving guidance to it but we're optimistic that the transformation that we were talking about to the core customer experience will be a catalyst for growth.
And we will update our revenue guidance accordingly throughout the year.
Right now we are currently guiding towards sequential growth.
Okay, great that sounds good and then maybe if you could just talk a little bit about the mix of sales longer term I guess between third party brands and then your girlfriend as you add I guess more third party brands via platform as a category is expand I guess has that changed in terms of your thoughts on where that mix will be.
Jeff Yurcisin: Our mission is more critical now than ever, and the path to achieve our mission and transform our business relies on our strategy to stay focused on our conscientious customers, win with our sustainability differentiation, and pursue our mission by running a sustainable, profitable, growing business. We're already seeing the results of our transformation underway. 2023 prioritized profitability and saw a number of incredible milestones for our company. We have a plan in place that we believe will make us profitable and growing sequentially by the end of 2023. While I'm excited about the results from this quarter, I can say with certainty that this is just the beginning as we look to make a number of changes that will benefit our customers, our shareholders, and our plan. We are now happy to answer any questions you have. Operator, please open the line for questions.
And then just in terms of the categories on the website you definitely added a lot of new categories is there anything else left that you don't want to expand into or should we think about it just adding more brands to those categories.
Yeah.
Thank you for the question again, Susan So I just want to emphasize one thing which is in my time in this role I am not working backwards from an ideal oh share percentage for girls club problems I want us to go find the best products in the world for this country answers customers and put them in front.
Our core customers, but I'm energized small boys, we've got some great growth cold product coming.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. And you may press star 2 if you would like to remove someone from the conversation. For participants using speaker equipment, it may be necessary to pick up your handset before.
So even as we add third party selection.
I am I believe theres, a great opportunity for that growth of that product is still jump.
Among.
Jump off and differentiate itself from other product at all.
Operator: One moment, please, while we pull. Thank you. Our first question comes from the line of Susan Anderson with Canaccordia. Please proceed with, "Hi, good evening."
In our in our store, so I'm, we're not giving guidance to it.
But what I think you will see is the growth product being a tremendous value and tremendous efficacy.
Susan Kay Anderson: Nice job on the quarter. Great to see that profitability continues to improve. I was wondering, so on the 2024 top line guide, maybe if you could just talk about, I guess, the cadence amongst the quarters. It sounds like you expect revenues to increase sequentially as we go throughout the year. I guess, should we expect the fourth quarter to be up year over year by the time we get there? Or how are you guys thinking about that?
Great and then maybe if I could just add one last one not sure. If you could give any color on just how growth performed at wholesale in the quarter.
And I guess are you expecting any additional expansion there at wholesale for the growth of that brand in 2024.
Thank you so we.
We did really incredibly well.
Proud of the type of product launches that we have you will see at the end of Q1 early Q2.
Jeff Yurcisin: Thanks. Thank you, Susan. We said we were going to be profitable and growing in 2024, and we still believe that. We are confident in the plan that we have in place, and what you will see is quarter over quarter on an ongoing basis, continued growth. In terms of year over year, we are not giving guidance for that, but we're optimistic that the transformation that we were talking about to the core customer experience will be a catalyst for growth, and we'll update our revenue guidance accordingly throughout the year.
New product hitting the stores hitting targets shelves, you will see 70% more retail doors open in 2024 year over year and so.
From our perspective, we are launching the right type of products. We're excited about this growth coke bottle wash power Hawk.
We're excited about the retail door expansion and we still firmly believe in our strategy of this omnichannel brand, where we're meeting our customers where they are.
Yeah.
Jeff Yurcisin: But right now, we are currently guiding towards sequential growth. Okay, great. That sounds good.
That sounds good. Thanks, so much good luck the rest of this year.
Thank you so much Jason.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Jeff Yurcisin: And then maybe if you could just talk a little bit about the mix of sales longer term, I guess, between third-party brands and then your Grove brand. As you add, I guess, more third-party brands to your platform, as the categories expand, I guess, has that changed in terms of your thoughts of where that mix will be? And then, just in terms of the categories on the website, you've definitely added a lot of new categories.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to CEO, Jeff <unk> for closing comments.
Thank you very much for joining us today.
Also want to thank our customers. They are the reason we are in business and we are here to serve them I. Appreciate your time this evening and thank you for your support upgrading.
Jeff Yurcisin: Is there anything else left that you want to expand into, or should we think about it just adding more brands to those categories? Thank you for the question again, Susan. So I just want to emphasize one thing, which is that in my time in this role, I am not working backwards from an ideal share percentage for GrowthCode products. I want us to find the best products in the world for these conscientious customers and put them in front of our core customers. What I'm energized by, though, is we've got some great GrowthCode products coming. So even as we add third-party selection, Co. I believe there is a great opportunity for that Grove Co. product to still jump up, jump out, and differentiate itself from other products on our in our store. So we are not giving guidance to it.
Yeah.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you.
You for your participation.
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Jeff Yurcisin: But what I think you will see is the growth product being of tremendous value and tremendous, And then maybe if I could just add one last one, I'm not sure if you could give any color on just how Grove performed at Wholesale in the quarter, and I guess are you expecting any additional expansion there at Wholesale for the Grove brand in 2024? Thank you. So, we did really, incredibly well. I am proud of the type of product launches that we have. You will see at the end of Q1, early Q2, new products hitting the stores and hitting target shelves.
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Jeff Yurcisin: You will see 70% more retail doors open in 2024 year over year. And so, from our perspective, we are launching the right type of products. We're excited about this Grove Co. bottle wash power pack. We're excited about the retail door expansion, and we still firmly believe in our strategy of this omnichannel brand, where we're meeting our customers where they are. Great, that sounds good. Thanks so much. Good luck for the rest of the year. Thank you so much, Susan. As a reminder, if you would like to ask a question, please press star 1 on your telephone. One moment, please, while we pull for questions. There are no further questions at this time. I'd like to turn the floor back over to CEO Jeff Yurcisin for Miller.
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Jeff Yurcisin: Thank you. Thank you. Thank you very much for joining us today. I also want to thank our customers. They are the reason we are in business, and we are here to serve them.
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Jeff Yurcisin: I appreciate your time this evening, and thank you for your support. Have a great evening. This concludes today's teleconference. You may disconnect your lines.
Operator: Thank you for your... and I'll there's one more drink coming from me.. Mostly, houses, Thank you, and others. Thank you. Thank you. Furman,... McClellan, Randy Maidas, and in on but B but a Stacey Marcotte and Michel Moudlard, Taylor Costello, compliqué armada, and Scott, Anderson, Dustein Cassidy and James Tuh, Adam Denon, Anderson Taylor, and Susan Zierman. Stack, and Dan Foley. All we need is you, and and and and and and and and and them do Ungar, John McMaster, Daniel Fowler, Douglas Ward, the well, Go to Beadaholique.com for all of your beading supply needs! Fourth Amendment American Legislation Re agencies, Smith, Weber, Osngating, Leina, Cossack, Tull, Liedra, Knaude, Simmons, on the contrary, was killed during battle in the mline, one of the 2011 Conquest Wars. There are many witnesses behind the battle that you should ask the prosecutor about. In the meantime, we want to thank you for your time, and we will see you again in the next lives bt conartet. Goodbye.
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