Q1 2024 Grove Collaborative Holdings Inc Earnings Call
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Operator: Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s first quarter 2024 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise.
Operator: Norton, Scott Anderson, Larry P. Coleman, and Steve Sinclair. I'll see you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye
Good afternoon, and thank you for standing by.
Operator: Following the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. Hosting today's call are Grove CEO Jeff Yurcisin and CFO Sergio Cervantes.
Speaker Change: Welcome to the Grub Collaborative Holdings, Inc. First quarter 2024 earnings conference call. At this time all lines have been placed on mute to prevent any background noise.
Speaker Change: Following the Speakers' remarks, we will open your lines for your questions. As a reminder, this conference call is being recorded.
Jeff Yurcisin: Hosting todays call are gross CEO, Jeff <unk> and CFO Sergio Cervantes.
Operator: Before they begin their prepared remarks, I will review the forward-looking statements safe harbor. Some of the statements made today about future prospects, financial results, business strategies, industry trends, and Grove's ability to successfully respond to business risks may be considered forward-looking, including statements relating to our intention to increase marketing spend, the addition of products to our Subscribe and Save program, future improvement in first-order conversion rates and payback period, our net revenue and adjusted EBITDA margin guidance, sequential revenue growth in the second half of the year, and adjusted EBITDA profitability for 2024.
Speaker Change: Before they begin their prepared remarks, I will review the forward looking statements safe harbored.
Speaker Change: 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 relating to our intention to increase marketing spend.
Jeff Yurcisin: In our products to our subscribe and save program future improvement in first order conversion rates and payback period on that.
Jeff Yurcisin: Revenue and adjusted EBITDA margin guidance sequential revenue growth in the second half of the year and adjusted EBITDA profitability for 2024.
Operator: 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 factors discussed in our files with the Securities and Exchange Commission. All of these statements are based on Grove's view 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 law.
Jeff Yurcisin: 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 factors discussed in our filings with the Securities and Exchange Commission. All of these statements are based on gross you today in Grove assumes no obligation to update any forward looking statements whether as a result.
Jeff Yurcisin: Of new information future events or otherwise, except as may be required under applicable securities laws for more information. Please refer to the risk factors discussed in gross most recent filings with the SEC, which are available on Grubbs Investor Relations website at investors that Grove Darko.
Operator: For more information, please refer to the risk factors discussed in Grove's most recent filings with the SEC, which are available on Grove's investor relations website at investors.groveco. During today's call, Grove 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.
Jeff Yurcisin: During today's call Greg 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.
Speaker Change: I would now like to turn the call over to Jeff York has seemed to begin.
Speaker Change: Thank you operator, Hello, everyone and thank you for joining the call today.
Jeff Yurcisin: Thank you, Operator. Hello, everyone, and thank you for joining the call today. I'm going to share our financial performance for the first quarter of 2024, as well as certain operations. This is my third earnings announcement with Grove as CEO, and I remain deeply confident in our incredible team's ability to first, deliver incremental, ongoing results against our challenges. Our focus on our core pillars of customer, sustainability, and profitability guides our decision making, activities, and products.
Jeff Yurcisin: I'm going to share our financial performance for the first quarter of 2024 as well as certain operational updates. This is my third earnings announcement with Grove I C E O and I remain deeply confident in our incredible teams ability to.
Speaker Change: First deliver incremental ongoing results against our strategy our focus on our core pillars of customer sustainability and profitability guides, our decision making activities in progress.
Jeff Yurcisin: Second, evolve our brand into the destination for conscientious consumers. We've expanded our own brand and third-party product assortment significantly in recent years to meet our customers' needs. We will continue to be a trusted destination for conscientious consumers who want the best for their families, their wallets, and the planet. The early results of our strategy represent the beginning of a multi-year transformation of the country, building a new foundation for our company and our brand to expand into a household name for sustainable products.
Speaker Change: Second evolve our brand into the destination for conscientious consumers, we've expanded our own brand and third party product assortment significantly in recent years to meet our customers' needs. We will continue to be a trusted destination for conscientious consumers who want the best for their families their wallets.
Speaker Change: The planet.
Speaker Change: Third transform grub collaborative the early results of our strategy represent the beginning of a multi year transformation of the company building a new foundation for our company and our brand to expand into a household name for sustainable products.
Speaker Change: We know that a significant percentage of shoppers in the United States prioritize sustainability in their purchases.
Jeff Yurcisin: We know that a significant percentage of shoppers in the United States prioritize sustainability in their purchases, especially as the plastic and climate crises in our society expand rapidly. The opportunity for Grove to fill a void in the consumer products and retail industries is remarkable.
Speaker Change: Actually as the plastic and climate crises in our society expand rapidly.
Speaker Change: Opportunity for growth to fill a void in the consumer products and retail industries is remarkable and for us to meet that opportunity. We must remain focused on operating a sustainable business to ensure we can continue in pursuit of our sustainable mission.
Jeff Yurcisin: And for us to meet that opportunity, we must remain focused on operating a sustainable business to ensure we can continue the pursuit of our sustainable mission. This pursuit continues to be guided by our three pillars, customer, sustainability, and profitability. First, I'll begin with our Customer Pillar, where we made significant changes to our customer experience and expanded our product offerings in an effort to make Grove more meaningful in the daily lives of our customers.
Speaker Change: This pursuit continues to be guided by our three pillars customer sustainability and profitability.
Speaker Change: First I'll begin with our customer pillar, where we made significant changes to our customer experience and expanded our product offerings and effort to make grow more meaningful in the daily lives of our customers.
Jeff Yurcisin: Last quarter, we shared that we've launched an updated experience for new customers, removing aided access and default subscriptions, reducing friction and the first order experience. We also launched a new subscribe and save program on individual products to incentivize cart building and repeat ordering. This change represents a significant shift in our business, but more importantly, it is the beginning of how we're rebuilding the front end of our business. The launch initially reduced first order conversion, but it has since improved and continues to improve as we optimize the experience.
Speaker Change: Last quarter, we shared that we launched an updated experience for new customers, removing aided access and default subscriptions, reducing friction in the first order experience.
Speaker Change: We also launched a new subscribe and save program on individual products to incentivize car building and repeat orders. This change represented a significant shift in our business model, but more importantly is the beginning of how we're rebuilding the front end of our business. The launch initially reduce the first water conversion, but it has since improved and continues.
Speaker Change: To improve as we optimize the experience as conversion and repeat order rates improve we intend to spend more on advertising to acquire new customers with efficient paybacks.
Jeff Yurcisin: As conversion and repeat order rates improve, we intend to spend more on advertising to acquire new customers with efficient payback. We have also made progress on our third-party category expansion. In the first quarter, we expanded our third-party assortment by 34% year-over-year and enrolled 41% of third-party products in our Subscribe and Save program, on top of the nearly 100% of Grove branded products also enrolled in the program. As additional third-party vendors agree to our vendor funding terms, more products will be added to the program over time.
Speaker Change: We also made progress on our third party category expansion initiative in the first quarter, we expanded our third party assortment by 34% year over year and enrolled 41% of third party products and our subscribe and save program on top of the nearly 100% of growth branded products also enrolled in the program.
Speaker Change: As additional third party vendors agree to our vendor funding terms more products will be added to the program over time.
Jeff Yurcisin: Lastly, this past quarter was a significant one for our flagship owned brand, GroveCo, where we executed a number of launches, including a GroveCo rebrand, leveraging beautiful and sustainable aluminum packaging and new artwork across our portfolio of products. We also introduced a new ready-to-use assortment of GroveCo hand soap, dish soap, and liquid laundry detergent that offers more accessible entry price points for customers by not requiring the purchase of durable dispensers. This assortment was brought to life through our ongoing retail partnership with Target to develop a product line that stands out on store shelves and conveys sustainability at a global scale.
Speaker Change: Lastly, this past quarter was a significant one for our flagship <unk> brand growth pillar, where we executed a number of launches, including our growth co rebrand leveraging beautiful and sustainable aluminum packaging and new artwork across our portfolio of products. We also introduced a new ready to use assortment of growth co handset.
Speaker Change: Dish soap and liquid laundry detergent that offers more accessible entry price points for customers by not requiring the purchase of durable dispensers.
Speaker Change: This assortment was brought to life through our ongoing retail partnership with target to develop a product line that stands out on store shelves and convey sustainability at a glance. We also launched rooted beauty by growth facial wipes are first personal care launch at nearly two years under our new brand strategy as well as new natural.
Jeff Yurcisin: We also launched Rooted Beauty by Grove Cove Facial Wipes, our first personal care launch in nearly two years under our new brand strategy, as well as new natural origin fragrances across our portfolio, including Sun Shower, Fresh Pomelo, Wild Mint, and Sea Spray.
Speaker Change: Oregon fragrances across our portfolio, including Sunshine fresh Pomelo Wild meant N C. Spray. Finally, we also launched our summer limited edition connect collection with the nature Conservancy celebrating our existing partnership and ongoing conservation efforts in southeast Alaska.
Jeff Yurcisin: Finally, we also launched our Summer Limited Edition collection with The Nature Conservancy, celebrating our existing partnership and ongoing conservation efforts in Southeast Alaska. Turning to our sustainability pillar, which continues to serve as our foundation, mission, and point of differentiation, we have driven a number of key initiatives that further drive our industry leadership. First, I'd like to start with our Earth Month celebration, which took place throughout April. Earth Month is a key milestone for us at Grove to celebrate progress on sustainability while further educating our customers about the work underway to do even more for the planet. During the month, we replaced plastic tape with paper tape to seal individual products within packages.
Speaker Change: Turning to our sustainability pillar, which continues to serve as our foundation mission and points of differentiation, we have driven a number of key initiatives that further drive our industry leadership.
Speaker Change: First I'd like to start with our Earth month celebration, which took place throughout April 1st month as a key milestone for us it growth to celebrate progress on sustainability well further educating our customers about the work underway to do even more for the planet during the month, we replace plastic tape with paper tape to seal individual products with them.
Speaker Change: Packages this will be a permanent change going forward. We also launched a digital campaign titled Perfection isn't sustainable progress is to celebrate the impact of our customers shopping with growth second we are publishing our 2023 annual sustainability report in May providing a detailed summary of our key commitments progress.
Jeff Yurcisin: This will be a permanent change going forward. We also launched a digital campaign titled Perfection Isn't Sustainable, Progress Is, to celebrate the impact of our customers shopping with Grove. Second, we are publishing our 2023 Annual Sustainability Report in May, providing a detailed summary of our key commitments, progress, and partnerships across important issues relating to Grove's business, plastics, carbon, forest health, ingredient standards, and justice and equity. Finally, we disclose our latest plastic intensity metrics in our earnings release this afternoon to continue providing accountability for the pace at which we decouple our revenue from the use of plastic.
Speaker Change: And partnerships across important issues relating to grow this business plastic carbon forest health ingredient standards and justice and equity.
Speaker Change: Finally.
Speaker Change: We disclosed our latest plastic intensity metrics in our earnings release. This afternoon to continue providing accountability for the pace at which we decoupled our revenue from the use of plastic.
Jeff Yurcisin: Finally, we turn to our profitability pillar. I'm proud to report that we have continued to maintain positive adjusted EBITDA for the third quarter in a row. Our long-term goal is to generate positive cash flow, but the first step along that journey is positive adjusted EBITDA. Specifically, this past quarter saw us make progress on our facility expenses, including restructuring our San Francisco headquarters lease and announcing the closure of our St. Peter's Missouri Fulfillment Center to streamline fulfillment operations.
Speaker Change: Finally.
Speaker Change: We turned to our profitability pillar I'm proud to report that we have continued to maintain positive adjusted EBITDA for the third quarter in a row, our long term goal is to <unk>.
Speaker Change: Positive cash flow, but the first step along that journey as positive adjusted EBITDA, specifically this past quarter saw us make progress on our facility expenses, including restructuring, our San Francisco headquarters lease and announcing the closure of our St Peters, Missouri fulfillment center to streamline fulfillment operations, we are taking action.
Jeff Yurcisin: We are taking action to ensure our corporate and fulfillment center footprints align with the size of our current business, but they still have room for us to scale. The savings will be reflected in our P&L throughout the coming quarter. These updates across our customer sustainability and profitability pillars demonstrate the progress that the Grove team has made and will continue to make in future quarters. Now, I'll turn the call over to Sergio to review our financial results in more detail. Sergio, please go ahead.
Speaker Change: To ensure our corporate and fulfillment center footprint align with the size of our current business, but still have room for us to scale. These.
Speaker Change: These savings will be reflected in our P&L throughout the coming quarters.
Speaker Change: These updates across our customer sustainability and profitability pillars demonstrate the progress with the growth team has made and will continue to make in future quarters.
Sir Hill: Now I'll turn the call over to Syria to review our financial results in more detail Sir Hill. Please go ahead.
Jeff: Thank you Jeff.
Sergio Cervantes: Similar to previous calls, we will provide quarter-over-quarter comparisons in addition to the year-over-year changes as 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 programs. Starting with the top line. Net revenue in the first quarter. What?
Sir Hill: Even though the previous call, we will provide quarter over quarter comparisons innovation with year over year changes as.
Speaker Change: As we continue to believe the sequential compare yourselves reflect sensitivity huh.
Sir Hill: I'll provide a measure of effectiveness fix we have taken to position ourselves for long term sustainable appropriate uncle.
Sir Hill: Starting with the top line.
Speaker Change: Net revenue in the first quarter.
Sergio Cervantes: 53.5 million? Down 10.5% from the 4th quarter of 2023 and 25.2% year-over-year. The ongoing impact of lower advertising continues to impact revenue. As we navigate the transformation of the first-order experience and prioritize marketing efficiency, advertising as a percentage of revenue was a record loader in the quad. We expect to scale our advertising spend in coming quarters to support revenue growth as we continue to improve our first-order conversion rate and payback speed.
Speaker Change: Well 53 5 million.
Sir Hill: The 10, 5% for the full quarter of putting 33 25, 2% year over year.
Speaker Change: The ongoing impact of lower advertising continues to improve.
Sir Hill: As we navigate the transformation of the first order theory, and prioritize marketing efficiency other.
Sir Hill: Taken as a percentage of revenue.
Sir Hill: The record low during the quarter.
Sir Hill: We.
Sir Hill: <unk>.
Sir Hill: And then in coming quarters to support revenue growth as we continue to go forward first of all of their conversion rate.
Sir Hill: Yeah.
Speaker Change: Hello, or their sports and 5% quarter over quarter 29, 5% year over year the point as needed.
Sergio Cervantes: Donut orders were down 10.5% quarter over quarter and 29.5% year over year to 0.8 million, and uptick customers were down 12.3% quarter over quarter and 35% year over year to 0.8 million. Both total orders and active customers continue to be impacted by lower advertising.
Speaker Change: <unk> costs were 12.
Speaker Change: 12, 3% quarter over quarter of 35% year over here.
Speaker Change: Yeah.
Speaker Change: Both total orders per active customer.
Speaker Change: We need to be impacted by lower advertising.
Speaker Change: <unk> seen that revenue per order was.
Sergio Cervantes: PTC Net Revenue Per Order was down 0.8% quarter over quarter but up 7.5% year-over-year to 66.27. The 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, particularly within health and wellness, as we continue to expand our product offering in the category, as well as paper goods. Growth margin was up 120 basis points quarter over quarter and 350 basis points year over year to 55.5%. The sequential improvement was mostly due to an increase in the estimated end of funding allowance. To better reflect the first group of third-party e-mentors.
Speaker Change: Point.
Speaker Change: 8% quarter over quarter.
Speaker Change: But up seven 5% year over year to 66 point important though.
Speaker Change: The year over year improvement was driven by a mix shift.
Speaker Change: Most of our orders as well as an increase in the number of customer order, particularly within health and wellness.
Speaker Change: As we continue to expand our protocol for the category.
Speaker Change: Well if paper groups.
Speaker Change: Gross margin was up 30 basis points.
Speaker Change: Water over quarter, three close up 50 basis points.
Speaker Change: Year over year to 55, 5%.
Speaker Change: The sequential improvement was mostly due to spring Creek.
Speaker Change: And the estimated funding allow them.
Speaker Change: To better reflect the sale through a third party inventory.
Speaker Change: The year over year improvement.
Sergio Cervantes: The year-over-year improvement was further benefited by reductions in inventory reserve charges and in decreasing the number of lower margin first orders as a percentage of total orders. However, the decrease in growth rate as a percentage of total wealth was offset by a decrease in procurement products as a percentage of net revenue was down 150 basis points quarter over quarter and 580 basis points year over year to 43%. The sequential and year-over-year decline was largely due to the expansion of our third-party product offering, especially as it relates to the Health and Wellness Guide. Additionally, fewer first orders, which historically have had more Grove branded items on average and the recent transformation of the new customer experience.
Speaker Change: Further benefited by a reduction in store inventory reserve charges.
Speaker Change: Decreasing the number of lower margins are sort of their.
Speaker Change: A percentage of total orders.
Speaker Change: Partially offset by a decrease in gross Brad.
Speaker Change: As a percent of total revenue.
Speaker Change: So from products as a percentage of net revenue was down about 50 basis points quarter over quarter, and 580 basis points year over year to 43%.
Speaker Change: The sequential and year over year decline.
Speaker Change: Lastly, due to the expansion of all the third party product offering.
Speaker Change: Especially as it relates to the guidance.
Speaker Change: Fewer first Florida, which Kevin historically.
Speaker Change: More of a branded items on average and the recent transformation of a new customer experience.
Speaker Change: Advertising expense decreased 47, 4% quarter over quarter at 76, 3% year over year to $2 1 million.
Sergio Cervantes: Advertising expense decreased 47.4% quarter-over-quarter and 76.3% year-over-year to $2.1 billion. The sequential and year-over-year decline reflects our pullback in advertising spend and focus on efficiency as we transform the first-order customer experience and improve first-order conventions. We have prioritized improving our first-order conversion rate, which has improved and continues to improve as we optimize the customer experience for new channels.
Speaker Change: This equation that year over year right.
Speaker Change: Blackstone or a pullback in advertising spend.
Speaker Change: Our focus on efficiency.
Speaker Change: For the first Florida customer experience and improved first quarter conversion rate.
Speaker Change: We have prioritized and proving out what first quarter conversion rate, which has improved and continues to improve as we optimize the customer experience for me.
Speaker Change: We anticipate increasing over time.
Speaker Change: Spend as a percentage of net revenue.
Speaker Change: Over the course of the year, while also improving our efficiency.
Sergio Cervantes: We anticipate increasing advertising spend as a percentage of net revenue over the course of the year while also improving our... The quarter-over-quarter and sequential decline are also due to a reduction in retail-specific advertising as we continue to balance growth and profitability in the chat. Product development expense decreased 20.4% quarter over quarter and 14% year over year to 3.6 million. The sequential decline is partially due to a lapping of 0.7 million declassification from NCNA and 0.1 million of restructuring charges in the fourth quarter.
Speaker Change: The quarter over quarter sequential decline I would also do sort of reduction that you picked up her type thing.
Speaker Change: We continue to balance growth and profitability in the check.
Speaker Change: Product development expense decreased 24% quarter over quarter, and 14% year over year to 36 months.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: The sequential decline is partially due to a lapping of <unk> 7 million for justification from NCAA.
Speaker Change: One would be you know structuring charges in the fourth quarter.
Speaker Change: Excluding these items.
Sergio Cervantes: Excluding these items, product development expense was stable quarter over quarter and declined year over year. The year-over-year decline was primarily due to the prior year impact of restructuring and a decrease in stock-based compensation. SG&A expense decreased 23.3% quarter over quarter and 35.3% year over year to $24.6 million. The quarter-over-quarter and year-over-year decline is mainly due to lower fulfillment costs from fewer orders. Lower persona from the reduction in headstones and lower facility costs from a partial quarter impact of the modification of our headquarters. The year-over-year decline was further benefited by the reduction in professional service costs of Node.
Speaker Change: Development expense was stable quarter over quarter and declined year over year.
Speaker Change: The year over year decline was primarily due to prior year impact of restructuring and a decrease in stock based compensation.
Speaker Change: <unk> decreased 23, 3% quarter over quarter, and 35, 3% year over year to $24 6 million.
Speaker Change: The quarter over quarter and year over year decline.
Speaker Change: Mainly due to lower fulfillment costs from fewer orders.
Speaker Change: Lower first on their radar screen.
Speaker Change: And lower facility goes from a course of a quarter, but also a modification of our headquarter city.
Speaker Change: The year over year decline was.
Speaker Change: But if he does by the reduction in professional service costs.
Speaker Change: Of note third.
Sergio Cervantes: Third-quarter NCNA includes a $2.9 million gain from restructuring, primarily the amendments to our headquarters list, compared to Q4 2023, which included a $3.3 million expense from restructuring. Adjusted EBITDA for the fourth quarter was $1.9 million, compared to $0.1 million in the fourth quarter of 2023 and a $6.9 million loss in the first quarter of 2020. Our adjusted dividend margin for the fourth quarter was positive 3.5% compared to positive 0.2% in Q4 2023 and negative 9.6% in Q1 2023. The improvement in adjusted EBITDA continues to demonstrate our hyper-focus on improving profitability.
Speaker Change: Quarter CNA incurred.
Speaker Change: A $2 9 million from restructuring, primarily the amendment to our headquarters lease.
Speaker Change: Compared to Q4, 2023, which included a $3 3 million expense from restructuring.
Speaker Change: Adjusted EBITDA for the fourth quarter was $1 9 million compared to <unk> 1 million.
Speaker Change: A full quarter of 30 33.
Speaker Change: And a $6 9 million at all in the first quarter of 2023.
Speaker Change: Our adjusted EBITDA margin for the full quarter was positive three 5% compared to positive 2% in Q4, 2023 and negative nine 6% in Q1.
Speaker Change: The improvement in adjusted EBITDA continues to demonstrate that we're hyper focused on improving productivity.
Sergio Cervantes: However, as Jeff mentioned previously, this improvement is only a milestone in our transformation that is focused on delivering positive cash. Net loss in the quarter was $3.4 million, which will be converted to a net loss of $9.5 million in the fourth quarter of 2023 and 13.1 million lost in the first quarter of 2020. Turning now to the banners.
Speaker Change: However, as Jeff mentioned previously this improvement is only a milestone in our transformation that is focused on delivering important these cash flow.
Speaker Change: Net loss in the quarter was $3 4 million compared to a net loss of nine foot apart.
Speaker Change: For quarter three.
Speaker Change: And third pinpoint 1 billion loss in the first quarter was plenty plenty sweet.
Speaker Change: Turning now to the balance sheet.
Speaker Change: We ended the quarter with $81 6 million cash.
Sergio Cervantes: We ended the quarter with $81.6 million in cash. Just before we open, I will switch the cache, a decrease of 13.3 million from the previous quarter. The decrease is mainly due to the least termination payment of our headquarters, annual bonus incentives payout, and interest expense. In this period of transformation, we remain extremely focused on cash preservation and target efficient returns on cash outflows, such as the list termination paper. Based on the rent savings, we expect less than a two-year payback period to recover the initial cash out.
Speaker Change: That's correct.
Speaker Change: Oh gosh.
Speaker Change: A decrease of $13 3 million from the previous quarter.
Speaker Change: The decrease is mainly due to the lease termination payment.
Speaker Change: Our hip water.
Speaker Change: Annual policy incentive payout on <unk>.
Speaker Change: <unk> expense.
Speaker Change: And this transformation will remain extremely focused on cash preservation and targeted fishing, but there are some cash outflows.
Speaker Change: Such as the lease termination.
Speaker Change: Based on the rent savings, we expect less than a two year payback period to recover that niche of cash outflow.
Speaker Change: As it relates to working capital trends, we finished the quarter with inventory.
Sergio Cervantes: As it relates to working capital trends, we finished the quarter with an inventory balance of $31.5 million, up $2.7 million from the end of Q4 2020, driven primarily by an increased investment in third-party inventory to support our category expansion initiative. We have not made any draws on our asset-based loan facility since taking the minimum draw of $7.5 million in Q1 2021, based on current inventories and accounts receivable balances. We have 9.1 million in borrowing capacity available under DASA.
Speaker Change: One 5 million.
Speaker Change: $2 7 million from the end of Q4, let me put it to me.
Speaker Change: Driven primarily by an increased investment in third party inventory to support that with category expansion.
Speaker Change: We have not made any draws on our asset based loan facility and is taking the minimum draw seven 5 million in Q1 plenty plenty sweet.
Speaker Change: Based on current inventory and accounts receivable balances.
Speaker Change: We have $9 1 million of borrowing capacity available on their desktop.
Speaker Change: Now turning to our house.
Sergio Cervantes: Now, turning to our out... For a 12-month period ending December 31st, 2024, we still expect net revenue of $215 to $225 million. And I just said it'd be a margin of 0 to 1%.
Speaker Change: For the 12 month period, ending December 31st putting putting floor.
Speaker Change: We still expect net revenue of $215 million to $225 million.
Speaker Change: Our adjusted EBITDA margin of zero to 1%.
Speaker Change: Despite the uncertainty around behemoth modest transformation, our ability to increase over time spent over the course of the year, we are maintaining our guidance and continue to be optimistic that the changes or first of all are the theory and the launch of subscribing to stay.
Sergio Cervantes: Despite the uncertainty around the Gizmos model transformation and our ability to increase advertising spend over the course of the year, we are maintaining our guidance and continue to be as optimistic that the changes to our first-order experience and the launch of subscribe and save will be catalysts for sequential revenue growth in the second half of the year. We are already seeing improvement to our first order commercial rate, as we expected, allowing us to acquire new customers more efficiently, but there is more work to be done.
Speaker Change: What are the catalysts for sequential revenue growth in the second half of the.
Speaker Change: We already see an improvement over first quarter commercial rates.
Speaker Change: Uh huh.
Speaker Change: Allowing us to acquire new customers more efficiently but.
Speaker Change: But there is more work to be done.
Speaker Change: We also continued to match our expenses what are the meat of the transformation, including the completion of the headquarters lease modifications in the first quarter.
Sergio Cervantes: We also continue to match our expenses well in the midst of the transformation, including the completion of the headquarters list modifications in the first quarter. I look forward to sharing more updates on top and bottom line progress in future quarters. I would now like to turn the call back over to Jeff for some closing remarks.
Speaker Change: I look forward to sharing more updates on top and bottom line progress in future quarters.
Speaker Change: I would now like to turn the call back over to Jeff for some closing remarks.
Jeff: Thank you Sir Yeah. These results are just the beginning as we pursue our multi year transformation for growth you've heard me speak about how our sustainable mission is needed now more than ever before just look at the headlines about our environment and climate is.
Jeff Yurcisin: Thank you, Sergio. These results are just the beginning as we pursue a multi-year transformation for Grove. You've heard me speak about how our sustainable mission is needed now more than ever before. Just look at the headlines about our environment and climate as proof.
Jeff: This is our differentiation we are committed to building a sustainable business to pursue that mission. Our efforts are focused on building a business that drive shareholder value creation through the generation of cash. Our first step is sequential revenue growth by the end of the year, while being profitable on an adjusted EBITDA basis for the full year, we're laser focused.
Jeff Yurcisin: This is our differentiation, and we are committed to building a sustainable business to pursue that. Our efforts are focused on building a business that drives shareholder value creation through the generation of capital. Our first step is sequential revenue growth by the end of the year while being profitable on an adjusted EBITDA basis for the full year. We're laser focused on our strategy and excited to keep implementing our plan to drive results for our shareholders. With that said, we're happy to answer any questions you have. Operator, please open the line for questions.
Speaker Change: Based on our strategy and are excited to keep implementing our plan to drive results for our shareholders with that we're happy to answer any questions you have.
Speaker Change: Operator, please open the line for questions.
Speaker Change: Thank you we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two to remove a question from the queue for.
Operator: Thank you. We will now conduct the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, while we poll for questions. And the first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: And the first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Susan Kay Anderson: Hi, good evening. Thanks for taking my question. Yeah, so I was wondering just kind of how we should think about the cadence of sales as we go throughout the year. I guess we should think about it just sequentially improving, I guess, quarter to quarter in terms of the decline, and then also maybe if you could talk about what the driver of the sales improvement will be as we go throughout the year.
Speaker Change: Hi, good evening, Thanks for taking my question.
Susan Kay Anderson: Yeah. So I was wondering just on kind of how should we should think about the cadence of sales as we go throughout the year.
Susan Kay Anderson: I guess should we think about it just sequentially, improving I guess quarter to quarter in terms of the decline and then also maybe if you could talk about what the driver at the self improvement won't be as we go throughout the year.
Susan Kay Anderson: Yeah.
Susan Kay Anderson: Appreciate it Susan Thank you.
Jeff Yurcisin: I appreciate it, Susan, thank you. First, I would say we're only guiding towards sequential growth. But we believe that we are near bottoming out of those unusual comps that occurred when we spent so heavily on marketing back in 2022. What we're doing is just being focused on initiatives around the customer experience, opening up the shopping experience to more new customers. Following our existing customers into wellness, where we're seeing great success, and improving the overall experience while browsing and shopping on Grove.
Susan Anderson: Hum.
Speaker Change: First I would say, we're only guiding towards sequential growth this year.
Susan: We believe that we are near a bottoming out of those unusual comps that occurred when we spent so heavily on marketing back in 2022, well, we're doing as distinct focus on initiatives around the customer experience. This opening up the shopping experience more new customers.
Speaker Change: Following our existing customers into wellness, where we're seeing great success in improving the overall experience, while browsing and shopping on growth, that's where we're putting our energy and so when you start looking at what the revenue impacts are that we are forecasting we see this sequential growth this year and more importantly, this will be.
Jeff Yurcisin: That's where we're putting our energy, and so when you start looking at what the revenue impacts are that we are forecasting, we see this sequential growth this year, and more importantly, this will be sustainable growth going forward as we go into 2020.
Speaker Change: Renewable growth going forward as we go into 2025.
Speaker Change: Yeah.
Speaker Change: Great and then I was wondering if you had any initial reads on the new products that you rolled out in terms of the ones with new packaging at retail.
Jeff Yurcisin: I was wondering if you had any initial reads on the new products that you rolled out in terms of the ones with new packaging at retail and also if you're seeing them at all bring any new customers into the brand.
Speaker Change: And also if you're seeing them at all bring any new customers into the brand.
Speaker Change: Okay.
Speaker Change: I appreciate it is very early on some of these new products that we are quite energized.
Jeff Yurcisin: I appreciate it. It is very early days for some of these new products, but we are quite excited. We're excited about the launch of the Grove Co. rebrand, the new products, and the summer limited edition collection. We didn't mention this in our release, but we were awarded an award by the Dye Line Award. It's almost like the Oscars of the design world around packaging within the category of home shopping. And so what we're seeing right now is anecdotally, we've heard that we've sold out of some targets already in the first week.
Speaker Change: We're excited about the launch of the Grubhub rebrand the new products and some are limited edition collection, we didn't mention this in our release, but we are awarded.
Speaker Change: And award by the Guideline award, it's almost like the Oscars of the design world around packaging.
Speaker Change: Within the category of home shopping and so what we're seeing right now is anecdotally we've heard that we've sold out of some targets already in the first week, where it really quite energized about the from the packaging to the positioning for me I'm as excited about the underlying product the efficacy of it and the price.
Jeff Yurcisin: We're really quite excited about everything from the packaging to the positioning. For me, I'm as excited about the underlying product, the efficacy of it, and the price. No new guidance that we're giving right now, just really excited about what we're doing and just recognizing that it's very early.
Speaker Change: No new guidance that we're giving right now is just really excited about what we're doing and just recognizing it's very early.
Speaker Change: Great that sounds exciting.
Susan Kay Anderson: Great, that sounds exciting. And then I was wondering if you could maybe talk about gross margin for the remainder of the year. And should we think about it for the next few quarters as being consistent with the first quarter in terms of the gross margin percent? Or are there any other drivers or impacts we should think about or seasonality there?
Speaker Change: And then I was wondering if you could maybe talk about gross margin trends.
Speaker Change: For the remainder of the year and should we think about it for the next few quarters as being consistent to the first quarter in terms of the gross margin percent or are there any other drivers.
Speaker Change: Or impacts we should think about seasonality there.
Speaker Change: I appreciate it so I'm sure he'll do you want to take that.
Sergio Cervantes: I appreciate it. So, Sergio, do you want to take this? Yes, I can. Go ahead.
Speaker Change: Yes, I can.
Speaker Change: Thank God.
Sergio Cervantes: So, thank you for the question, Susan. In terms of gross margin, just bear in mind that Q1 has a couple of, say, one ideas that you shouldn't be thinking of continuing during the following quarter. So, apart from that, I will just simply say that we obviously do not guide on gross margins going forward, but the way to think about it is we continue, as we have done over the past 24 months, to put all the efforts and priorities in terms of becoming profitable, and gross margin continues to be one of those milestones. So, the way to think about it is that we continue to put emphasis on gross margins, and we will put all the efforts behind increasing them in the coming quarter.
Speaker Change: So thank you for the question so something in there.
Speaker Change: The gross margin to bear in mind that Q1 has a couple of.
Speaker Change: Say once all.
Speaker Change: But you shouldn't be thinking of continuing during the following quarters. So.
Speaker Change: From that I wouldn't until simply say that we obviously do not guide on the gross margin going forward, but the way to think about it. If we continue as we have grown over the past 24 months, we continue to put all the airports some priorities in terms of becoming profitable and gross margin continues.
Speaker Change: It'll be one of those milestones so the way to think about it is we continue to put emphasis on gross margin.
Speaker Change: And we will we will put all the efforts behind increasing it in upcoming quarters.
Speaker Change: Yeah.
Speaker Change: Okay, Great and then last one for me maybe if you could just talk about advertising I think you had talked about before maybe picking up that advertising in the back half of the year I guess is that still the plan for this year and should we I guess is there any thoughts around that level of advertising and where it should be going forward.
Susan Kay Anderson: Okay, great. And then last one for me, maybe if you could just talk about advertising. I think you had talked about before, maybe picking up that advertising in the back half of the year. I guess, is that still the plan for this year? And should we, I guess, are there any thoughts around the level of advertising and where it should be going forward?
Speaker Change: I appreciate that Susan I would say.
Jeff Yurcisin: I appreciate that, Susan. I would say... Right now, we are operating with really strict discipline, expecting and demanding strong paybacks from our advertising spend. And so what's happening is that as we've transformed this customer experience, as we have opened up the shopping experience, we are unlocking new channels, and we're testing and learning. And what we're seeing is week over week improvement since that launch on February 29th. And so as those efficiencies continue to improve, we see a world where we can invest with very high confidence in paybacks, and that will lead to a higher advertising percent of revenue spend.
Susan: Right now we are operating with really strict discipline expecting and demanding strong paybacks from our advertising spend and so what's happening is as we've transformed this customer experience because we have opened up the shopping experience.
Speaker Change: We are unlocking new channels, and we're testing and learning and what we're seeing is week over week improvement since that launch on February 29, and so as those efficiencies continue to improve we see a world where we can invest with very high confidence on paybacks and that will lead to.
Jeff Yurcisin: Right now, I'm not guiding to a specific number there. I will say that what is most important is that we think about this on an incremental level, and we will only invest where it makes rational sense. So, when we do see that marketing spend increases a percentage of revenue, I think investors can have confidence that we are treating their cash carefully and we are investing with high expectations of return.
Speaker Change: A higher advertising percent of revenue spend right now I'm not guiding to a specific number there I will say that.
Speaker Change: What is most important as we think about this incremental level and we will only invest where it makes rational sense. So when we do see that that marketing spend increase as a percentage of revenue I think investors can have confidence that we are trading their cash.
Carefully and we are investing with high expectations on returns.
Speaker Change: Okay, great. Thanks, so much good luck the rest of you I think Susan really appreciate it.
Jeff Yurcisin: Okay, great. Thanks so much. Good luck the rest of the year. Thanks, Susan. I really appreciate it.
Speaker Change: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.
Operator: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.
Dana Lauren Telsey: Hi, good afternoon everyone. Jeff, can you talk a little bit about third-party brands, what you're seeing there, how they're performing, are there differences between brands, or what you see in attributes of brands that perform better than others? And on the Grove brand, which I think was 43% of the business this quarter, where does that settle out, and how are you thinking about it?
Hi, Good afternoon, everyone can you Jeff can you talk a little bit about third party brands, what you're seeing there how it how it is performing as their differences between brands or what you see in attributes of brands to perform better than others and on the growth brand, which I think was 43% of the business this quarter.
Jeff: Where does that settle out and how you're thinking about it.
Speaker Change: I appreciate the chance to talk a little bit more about product. So first.
Jeff Yurcisin: I appreciate the chance to talk a little bit more about products. So first, as the data suggests, third-party is growing faster. This is primarily driven because we're able to grow more SKUs and selection faster in that channel. However, as I've mentioned before, we really are not working backwards from an ideal percentage mix.
The data suggests third party is growing faster this.
Jeff: This is primarily driven because we're able to grow more skus and selection faster and that channel. However, I've mentioned this before we really are not working backwards from an ideal percentage mix. What we are doing is working backwards from customer needs. So the percent owned brand versus third party is truly going.
Jeff Yurcisin: What we are doing is working backwards from customer needs. So the percent owned brand versus third party is truly going to be more of an output metric than an input metric. If investors are worried, I think you could point to our gross margin continuing to improve quarter over quarter, even as third-party has taken more share. Our focus is presenting the highest performing Planet First products that are wallet-friendly, and we'll keep putting them in front of our customers.
Jeff: To be more of an output metric than input metric. If investors are worried I think you could point towards our gross margin continues to improve quarter over quarter and even as third party has taken more share. Our focus is presenting the highest performing planet scripts products that our wallet friendly and we'll keep putting them in front of our customers.
Jeff Yurcisin: If I can put an exclamation mark on one set of products and categories, it would be around wellness. So there was a survey that we did among our customers, and nine out of 10 of our customers trust us more than other retailers when selling them wellness items. We've earned that trust by the high standards that we have from an environmental perspective, but also from an ingredient perspective. And so what we've seen this past quarter, orders with a VMS item increased from 8% last year to 13.8% this year.
Jeff: You can put an exclamation mark on one set of products and categories. It would be around the wellness. So there was a survey that we did among our customers and nine out 10 of our customers Trust us more than other retailers on selling them a wellness items. We've earned that trust by the high standards that we have from an environmental perspective, but also from an.
Speaker Change: Ingredient perspective, and so what we've seen this past quarter orders with a vms item increase from 8% last year to 13, 8%. This year. This is also an increase of 290 basis points quarter over quarter as we continue to add more relevant selection.
Jeff Yurcisin: This is also an increase of 290 basis points quarter over quarter as we continue to add more relevant selection and introduce our customers to great brands and products that are really meeting their needs. And so it is a category that we're energized by, and one that we're seeing some strong success in. And we're just following our customers.
Speaker Change: Traduce, our customer admirers, two great brands and products that are really meeting their needs and so it is a category that we're energized by it and one that we're seeing some strong success and we're just following our customers here.
Speaker Change: Got it and then following up on a numbers question on metrics orders active customers a L Z how.
Dana Lauren Telsey: Got it. And then following up on the numbers question or metrics, orders, active customers, AOV. How are you thinking of those progressing as we move through the year? How do you think about stabilization to increases? How should those metrics evolve in terms of the cadence? Yeah, good question. So.
Speaker Change: How are you thinking of those progressing as we move through the year one.
Speaker Change: How do you think about stabilization to increases how should those metrics evolve in terms of the cadence.
Speaker Change: Yeah. Good question.
Jeff Yurcisin: Yeah, good question. So I mentioned earlier in the first Q&A with Susan that we see some of the natural cohort curves bottoming out in the back half of the year, and we can see a world heading towards sequential growth, and that's where we are marching towards. When you look at some of the math, revenue per order this quarter was at $66.27, I believe, and it was up 7.5% year over year. Those type of expectations on revenue per order are reasonable to continue to maintain.
Speaker Change: So I mentioned earlier in the first Q&A with Susan that we see them some of the natural cohort curves bottoming out in the back half of the year and we can see a world towards sequential growth and we are that's where we are marching towards when you look at some of the math revenue per order. This quarter was at 66 dollar.
Speaker Change: And 27% I believe.
Speaker Change: And it was up seven 5% year over year those type of expectations on revenue per order.
Speaker Change: A reasonable chance to continue to maintain that's what enables the wallet economics to work so that customers are getting a great deal and we're able to pay our bills and deliver the right type of gross margin. So I think what youll see is more of a stabilization of orders as we get to the back half of the year.
Jeff Yurcisin: That's what enables the wallet economics to work so that customers are getting a great deal, and we're able to pay our bills and deliver the right type of growth. So I think what you'll see is more of a stabilization of orders as we get to the back half of the year and continued year over year improvement in revenue per order.
Speaker Change: And a continued year over year improvement in revenue per order.
Speaker Change: Thank you.
Dana Lauren Telsey: Thank you Dana.
Speaker Change: And there are no further questions at this time I would like to turn the floor back over to Jeff <unk> for any closing comments.
Jeff Yurcisin: And there are no further questions at this time. I would like to turn the floor back over to Jeff Yurcisin for any closing comments.
Jeff: Thank you very much I appreciate your time want to thank everyone for joining the call and I Hope you have a great night. Thank you.
Jeff Yurcisin: Thank you very much. I appreciate your time. I want to thank everyone for joining the call, and I hope you have a great night. Thank you. And, ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time.
Speaker Change: And ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Operator: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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